Exam 4: Corporate Nonliquidating Distributions

Boxer Corporation buys equipment in January of the current year with a seven-year class life for $15,000.The corporation expensed the $15,000 under Sec.179.The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is

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

Identify which of the following statements is false.

Jerry purchased land from Winter Harbor Corporation,his 100%-owned corporation,for $275,000.The corporation purchased the land three years ago for $300,000.Similar tracts of land located nearby have sold for $400,000 in recent months.What tax issues should be considered with respect to the corporation's sale of the land?

Identify which of the following statements is true.

For purposes of determining current E&P,which of the following items cannot be deducted in the year incurred?

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?

When computing E&P and taxable income,different depreciation methods are often used.What happens when the taxpayer sells such assets?

In the current year,Pearl Corporation has $300,000 of current and accumulated E&P.On June 3,Pearl Corporation distributes a parcel of land (a capital asset)worth $120,000 to Betty,a shareholder.The land has a $60,000 adjusted basis to Pearl Corporation and is subject to a $16,000 mortgage,which Betty assumes.Assume a 34% marginal corporate tax rate. a)What is the amount and character of the income recognized by Betty as a result of the distribution? b)What is Betty's basis for the land? c)What is the amount and character of Pearl's gain or loss as a result of the distribution? d)What effect does the distribution have on Pearl's E&P?

Identify which of the following statements is true.

Maury Corporation has 200 shares of stock outstanding as follows: How many shares is Amy deemed to own under the Sec.318 attribution rules?

Van owns all 1,000 shares of Valley Metal Corporation stock.The stock has a $100,000 FMV.Karen wants to purchase the stock from Van but has only $70,000.Valley Metal has ample cash,which is not needed for operations.Which of the following best qualifies for bootstrap redemption treatment and no constructive dividends to the purchaser?

In the current year,Red Corporation has $100,000 of current and accumulated E&P.On March 2,Red Corporation distributes to Randy,a shareholder,a parcel of land (a capital asset)having a $60,000 FMV.The land has a $30,000 adjusted basis (for both tax and E&P purposes)to Red Corporation and is subject to an $8,000 mortgage,which Randy assumes.Assume a 34% marginal corporate tax rate. a)What is the amount and character of the income Randy recognizes as a result of the distribution? b)What is Randy's basis for the land? c)What is the amount and character of Red Corporation's gain or loss as a result of the distribution? d)What effect does the distribution have on Red Corporation's E&P?

Current E&P does not include

A stock redemption is always treated as if the shareholder sold his stock to the corporation.

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?

Identify which of the following increases Earnings & Profits.

Good Times Corporation has a $60,000 accumulated E&P balance at the beginning of the year and incurs a $100,000 deficit during the year.Because of its poor operating performance,Good Times pays only three of its usual $10,000 quarterly dividend payments to its sole shareholder: those ordinarily paid March 31,June 30,and September 30.How are the March 31,June 30,and September 30 payments of $10,000 treated?

What are the consequences of a stock redemption to the distributing corporation?

On April 1,Delta Corporation distributes $120,000 in cash to each of its two equal shareholders,Sarah and Matt.At the time of the distribution,Delta's E&P is $160,000.Sarah's basis in her stock is $50,000 and Matt's basis in his stock is $20,000.How are the distributions characterized to Sarah and Matt? Be specific.