Exam 4: Corporate Nonliquidating Distributions

Nichol Corporation has 100 shares of common stock outstanding.Nichol repurchased all of Ned's 30 shares for $35,000 cash during the current year.Ned received the shares as a gift from his mother three years ago.They have a basis to him of $16,000.Nichol Corporation has $100,000 in current and accumulated E&P.Ned's mother owns 40 of the remaining shares; unrelated individuals own the other 30 shares.What tax issues should be considered with respect to the corporation's purchase of Ned's shares?

John owns 70% of the May Corporation stock and 60% of the June Corporation stock.John sells one-half of his interest in May Corporation to June Corporation for $45,000.The E&P accounts of May and June are $25,000 and $35,000,respectively.The result would be that

Susan owns 150 of the 200 outstanding shares of Parent Corporation's stock.Parent owns 160 of the 200 outstanding shares of Subsidiary Corporation's stock.Susan sells 50 shares of her Parent stock to Subsidiary for $40,000.Susan's basis in her Parent shares is $15,000 ($100 per share).Subsidiary Corporation and Parent Corporation have E&P of $60,000 and $25,000,respectively,at the end of the year in which the redemption occurs. a)What is the amount and character of Susan's gain or loss on the sale? b)What is Susan's basis in her remaining shares of Parent stock? c)How does the sale affect the E&P of Parent and Subsidiary Corporations? d)What basis does Subsidiary Corporation take in the Parent shares it purchases? e)How would your answer to Part (a)change if Susan instead sells 100 of her Parent shares to Subsidiary Corporation for $80,000?

Identify which of the following statements is true.

Grant Corporation sells land (a noninventory item)with a basis of $57,000 for $100,000.Nichole will be paid on an installment basis in five equal annual payments,starting in the current year.The E&P for the year of sale will be increased as a result of the sale (excluding federal income taxes)by

Identify which of the following statements is true.

In a taxable distribution of stock,the recipient shareholder takes a basis equal to the FMV of the stock received.

Kiara owns 100% of the shares of Lion Corporation.Kiara's basis is $70,000 and the FMV of the shares is $200,000.Kiara is willing to sell all of the stock to Tia,but Tia is unwilling to pay more than $150,000 for the stock because the Corporation has excess cash balances.They have agreed that Kiara can withdraw $50,000 in cash from Lion before the stock sale.What tax issues should be considered with respect to Kiara and Tia's agreement?

Identify which of the following statements is true.

Identify which of the following statements is true.

Perch Corporation has made paint and paint brushes for the past ten years.Perch Corporation is owned equally by Arnold,an individual,and Acorn Corporation.Perch Corporation has $100,000 of accumulated and current E&P.Both Arnold and Acorn Corporation have a basis in their stock of $10,000.Perch Corporation discontinues the paint brush operation and distributes assets worth $10,000 each to Arnold and Acorn Corporation in redemption of 20% of their stock.Due to the distribution,Arnold and Acorn Corporation must report:

Identify which of the following statements is false.

The Sec.318 family attribution rules can be waived for purposes of the Sec.302(b)(3)complete termination rules even though the redeeming shareholder is a creditor of the corporation.

Rose has a $20,000 basis in the 60% of the Parent Corporation stock that she owns.Parent Corporation owns a 70% interest in Child Corporation.Parent and Child have current and accumulated E&P balances of $25,000 and $40,000,respectively.In return for $15,000,Rose sells 10% of the Parent Corporation stock to Child Corporation.What is the impact of the transaction on Rose?

Peter owns all 100 shares of Parker Corporation's stock.His basis in the stock is $30,000.Parker Corporation has $300,000 of E&P.Parker Corporation redeems 25 of Peter's shares for $90,000.What are the consequences to Peter and to Parker Corporation?

Identify which of the following statements is true.

Hogg Corporation distributes $30,000 to its sole shareholder,Ima.At the time of the distribution,Hogg's E&P is $14,000 and Ima's basis in her stock is $10,000.Ima's gain from this transaction is a

Strong Corporation is owned by a group of 20 shareholders.During the current year,Strong Corporation pays $225,000 in salary and bonuses to Stedman,its president and controlling shareholder.The IRS audits Strong's tax return and determines that reasonable compensation for Stedman would be $125,000.Strong Corporation agrees to the adjustment. a)What effect does the disallowance of part of the deduction for Stedman's salary and bonuses have on Strong Corporation and Stedman? b)What tax savings could have been obtained by Strong Corporation and Stedman if an agreement had been in effect that required Stedman to repay Strong Corporation any amounts determined by the IRS to be unreasonable?

Identify which of the following statements is true.

Stone Corporation redeems 1,000 share of its stock from Steve for $100,000.Steve's basis in those shares is $80,000.What tax issues should Steve consider with respect to the transaction?