Exam 4: Corporate Nonliquidating Distributions

Corporate distributions that exceed earnings and profits are always capital gains.

Tomika Corporation has current and accumulated earnings and profits of $0.Tomika distributes $10,000 to its sole shareholder,Alana.What are Tomika's earnings and profits after the distribution?

In the current year,Ho Corporation sells land that has a $6,000 basis and a $10,000 FMV to Henry,an unrelated individual.Henry makes a $2,500 down payment this year and will pay Ho $2,500 per year for the next three years,plus interest on the unpaid balance at a rate acceptable to the IRS.Ho's realized gain is $4,000.Since Ho is not in the business of selling land,it will use the installment method of accounting.How does this transaction affect Ho's E&P in the current year and the three subsequent years?

Which of the following transactions does not have the potential of creating a constructive dividend?

Digger Corporation has $50,000 of current and accumulated E&P.On March 1,Digger distributes land with a $30,000 FMV and a $17,500 adjusted basis to Dave,its sole shareholder.The land is subject to a $5,000 liability which Dave assumes. a)What are the amount and character of the distribution? b)What is Dave's basis in the property? c)When does his holding period for the property begin?

Rich owns 60 of the 100 outstanding shares of Rainbow Corporation's stock and 80 of the 100 outstanding shares of Oz Corporation's stock.Rich's basis in his Rainbow shares is $12,000,and his basis in his Oz shares is $8,000.Rich sells 30 of his Rainbow shares to Oz Corporation for $50,000.At the end of the year of the sale,Rainbow and Oz Corporations have E&Ps of $25,000 and $40,000,respectively. a)What is the amount and character of Rich's gain or loss? b)What is Rich's basis in his remaining shares of the Rainbow and Oz stock? c)How does the sale affect the E&Ps of Rainbow and Oz Corporations? d)What basis does Oz Corporation take in the Rainbow shares it purchases? e)How would your answer to part (a)change if Rich owns only 50 shares of the 100 outstanding shares of Oz Stock?

Gould Corporation distributes land (a capital asset)worth $90,000 to Gerry,a shareholder.The land has a $30,000 basis to Gould.What is the amount and character of the gain or loss recognized by Gould?

Tia receives a $15,000 cash distribution from Main Corporation in March of the current year.Main has $6,000 of accumulated E&P at the beginning of the year and $12,000 of current E&P.Main also distributed $15,000 in cash to Betty,who purchased all 300 shares of Main stock from Tia in June of the current year.What tax issues should be considered with respect to the distributions paid to Tia and Betty?

Omega Corporation is formed in 2006.Its current E&P and distributions for each year through 2010 are as follows: Is the distribution made from current or accumulated E&P? At the beginning of 2011,what is accumulated E&P?

What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

Maple Corporation distributes land to a noncorporate shareholder.Explain how the following items are computed: a)The amount of the distribution. b)The amount of the dividend. c)The basis of the land to the shareholder. d)The start of the holding period for the land. How would your answers change if the distribution was made to a corporate shareholder?

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.

Which of the following is not a condition that permits a stock redemption to be treated as a sale?

Bruce receives 20 stock rights in a nontaxable distribution.The stock rights have an FMV of $5,000.The common stock with respect to which the rights are issued has a basis of $4,000 and an FMV of $120,000.Bruce allows the stock rights to lapse.He can deduct a loss of

When computing E & P,Section 179 property must be expensed ratably over a five-year period,starting with the month in which it is expensed for Sec.179 purposes.

Payment Corporation has accumulated E&P of $19,000 and current E&P of $28,000.During the year,the corporation makes the following distributions to its sole shareholder: The sole shareholder's basis in her stock is $45,000.What are the tax consequences of the June 1 distribution?

Oreo Corporation has accumulated E&P of $8,000 at the beginning of the current year.During the year (a nonleap year),the corporation incurs a current E&P deficit of $18,250.The corporation distributes $11,000 on March 20th to Morris,its sole shareholder,who has a $9,000 basis for his stock.If the exact loss cannot be determined as of the date of distribution,the treatment of the distribution will be

Dixie Corporation distributes $31,000 to its sole shareholder,Sally.At the time of the distribution,Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

Identify which of the following statements is true.