Question 1

Which of the following statements regarding constructive dividends is not correct?

Accepted Answer

A)  Constructive dividends do not need to be formally declared or designated as a dividend. 
B)  Constructive dividends need not be paid pro rata to the shareholders. 
C)  Corporations that receive constructive dividends may not use the dividends received deduction. 
D)  Constructive dividends are taxable as dividends only to the extent of earnings and profits. 
E)  All of the above. 
A)  Constructive dividends do not need to be formally declared or designated as a dividend. 
B)  Constructive dividends need not be paid pro rata to the shareholders. 
C)  Corporations that receive constructive dividends may not use the dividends received deduction. 
D)  Constructive dividends are taxable as dividends only to the extent of earnings and profits. 
E)  All of the above.

Question 2

Penguin Corporation purchased bonds (basis of $190,000) of its 100% owned subsidiary, Finch Corporation, at a discount. Pursuant to a § 332 liquidation and in satisfaction of the indebtedness, Finch distributes land worth $200,000 (basis of $160,000) to Penguin. Which of the following statements is correct with respect to the distribution of land?

Accepted Answer

A)  Neither Finch nor Penguin recognize gain (or loss). 
B)  Finch recognizes no gain and Penguin recognizes a gain of $10,000. 
C)  Finch recognizes a gain of $40,000 and Penguin recognizes no gain. 
D)  Finch recognizes a gain of $40,000 and Penguin recognizes a gain of $10,000. 
E)  None of the above. 
A)  Neither Finch nor Penguin recognize gain (or loss). 
B)  Finch recognizes no gain and Penguin recognizes a gain of $10,000. 
C)  Finch recognizes a gain of $40,000 and Penguin recognizes no gain. 
D)  Finch recognizes a gain of $40,000 and Penguin recognizes a gain of $10,000. 
E)  None of the above.

Question 3

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2018.
a. Increase
b. Decrease 
c. No effect
-Gain on installment sale in 2018 deferred until 2019.

Accepted Answer

The answer of Using the legend provided, classify each statement...

Question 4

Raul's gross estate includes 1,500 shares of stock of Orange Corporation (basis to Raul of $1.2 million, fair market value on date of death of $8.2 million). The estate will incur $4.4 million of death taxes and funeral and administration expenses, and the adjusted gross estate is $18 million. Denise, Raul's daughter and sole heir of his estate, owns the remaining 500 shares of Orange Corporation's shares outstanding. In the current year, Orange (E&P of $10 million) redeems all of the estate's 1,500 shares for $8.2 million. What are the tax consequences of the redemption to Raul's estate?

Accepted Answer

A portion of the redemption qualifies un

Question 5

No E & P adjustment is required for regular tax gains under the installment method.

Accepted Answer

A) True 
 B)False

Question 6

On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, while Tom's basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?

Accepted Answer

Anne and Tom each have dividend income o

Question 7

For purposes of a partial liquidation, the termination of a business test is a subjective test that should be relied upon only after obtaining a favorable ruling from the IRS.

Accepted Answer

A) True 
 B)False

Question 8

Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.

Accepted Answer

A) True 
 B)False

Question 9

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations):  
Warbler Corporation is not a member of a controlled group. As a result of the distribution:

Accepted Answer

A)  The shareholders have dividend income of $200,000. 
B)  The shareholders have dividend income of $260,000. 
C)  Warbler has a recognized gain of $30,000 and a recognized loss of $30,000. 
D)  Warbler has no recognized gain or loss. 
E)  None of the above. 
A)  The shareholders have dividend income of $200,000. 
B)  The shareholders have dividend income of $260,000. 
C)  Warbler has a recognized gain of $30,000 and a recognized loss of $30,000. 
D)  Warbler has no recognized gain or loss. 
E)  None of the above.

Question 10

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2018.
a. Increase 
b. Decrease
c. No effect
-A decrease in the LIFO recapture amount during the year.

Accepted Answer

The answer of Using the legend provided, classify each statement...

Question 11

Briefly discuss the rules related to distributions of non-cash property.

Accepted Answer

Amounts distributed as dividends in the

Question 12

Ten years ago, Carrie purchased 2,000 shares of common stock in Osprey Corporation for $20,000. In the current year, Carrie receives a nontaxable stock dividend of 20 shares of Osprey preferred. Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common. Based on this information, Carrie's basis in the stock is:

Accepted Answer

A)  $20,000 in the common and $8,000 in the preferred. 
B)  $2,000 in the common and $18,000 in the preferred. 
C)  $18,000 in the common and $2,000 in the preferred. 
D)  $19,802 in the common and $198 in the preferred. 
E)  None of the above. 
A)  $20,000 in the common and $8,000 in the preferred. 
B)  $2,000 in the common and $18,000 in the preferred. 
C)  $18,000 in the common and $2,000 in the preferred. 
D)  $19,802 in the common and $198 in the preferred. 
E)  None of the above.

Question 13

Brett owns stock in Oriole Corporation (basis of $100,000) as an investment. Oriole distributes property (fair market value of $375,000? basis of $187,500) to him during the year. Oriole has current E & P of $25,000 (which includes the E & P gain on the property distribution), accumulated E & P of $100,000, and makes no other distributions during the year. What is Brett's capital gain on the distribution?

Accepted Answer

A)  $0 
B)  $100,000 
C)  $150,000 
D)  $187,500 
E)  None of the above 
A)  $0 
B)  $100,000 
C)  $150,000 
D)  $187,500 
E)  None of the above

Question 14

A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.

Accepted Answer

A) True 
 B)False

Question 15

Property distributed by a corporation as a dividend is subject to a liability in excess of its basis. For purposes of determining gain on the distribution, the basis of the property is treated as being not less than the amount of liability.

Accepted Answer

A) True 
 B)False

Question 16

How does the definition of accumulated E & P differ from the definition of current E & P?

Accepted Answer

Accumulated E & P is the total of all pr

Question 17

Rose Corporation (a calendar year taxpayer) has taxable income of $300,000, and its financial records reflect the following for the year.  
Rose Corporation's current E & P is:

Accepted Answer

A)  $254,000. 
B)  $214,000. 
C)  $194,000. 
D)  $104,000. 
E)  None of the above. 
A)  $254,000. 
B)  $214,000. 
C)  $194,000. 
D)  $104,000. 
E)  None of the above.

Question 18

Which of the following is a correct statement regarding a redemption to pay death taxes under § 303?

Accepted Answer

A)  An estate recognizes gain on the redemption equal to the excess of the distribution proceeds over the decedent's basis in the stock. 
B)  The § 318 stock attribution rules do not apply to the redemption. 
C)  The value of the stock in the decedent's gross estate must exceed 40% of the value of the adjusted gross estate. 
D)  A corporation recognizes gains and losses on the distribution of property in the redemption. 
E)  None of the above. 
A)  An estate recognizes gain on the redemption equal to the excess of the distribution proceeds over the decedent's basis in the stock. 
B)  The § 318 stock attribution rules do not apply to the redemption. 
C)  The value of the stock in the decedent's gross estate must exceed 40% of the value of the adjusted gross estate. 
D)  A corporation recognizes gains and losses on the distribution of property in the redemption. 
E)  None of the above.

Question 19

Pheasant Corporation, a calendar year taxpayer, has $400,000 of current E & P and a deficit in accumulated E & P of $180,000. If Pheasant pays a $600,000 distribution to its shareholders on July 1, how much dividend income do the shareholders report?

Accepted Answer

A)  $0 
B)  $20,000 
C)  $220,000 
D)  $400,000 
E)  None of the above 
A)  $0 
B)  $20,000 
C)  $220,000 
D)  $400,000 
E)  None of the above

Question 20

Albatross Corporation acquired land for investment purposes in 2004 at a cost of $100,000. Albatross sold the land to Monty on December 30, 2018, and did not elect out of the installment method of accounting. The selling price of the property was $400,000. Monty made a cash down payment of $50,000 on the date of sale and executed a $350,000 note, payable in seven annual installments of $50,000 each plus interest at the rate of 6% per annum. The first installment of $50,000 was due in 2019 which Monty paid, plus interest of $21,000. Discuss the effect of this sale on Albatross's taxable income and its E & P account in 2018 and 2019.

Accepted Answer

The gross profit percentage on the sale

Exam 19: Corporations: Distributions Not in Complete Liquidation

Which of the following statements regarding constructive dividends is not correct?

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2018. a. Increase b. Decrease c. No effect -Gain on installment sale in 2018 deferred until 2019.

No E & P adjustment is required for regular tax gains under the installment method.

For purposes of a partial liquidation, the termination of a business test is a subjective test that should be relied upon only after obtaining a favorable ruling from the IRS.

Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations): Warbler Corporation is not a member of a controlled group. As a result of the distribution:

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2018. a. Increase b. Decrease c. No effect -A decrease in the LIFO recapture amount during the year.

Briefly discuss the rules related to distributions of non-cash property.

A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.

Property distributed by a corporation as a dividend is subject to a liability in excess of its basis. For purposes of determining gain on the distribution, the basis of the property is treated as being not less than the amount of liability.

How does the definition of accumulated E & P differ from the definition of current E & P?

Rose Corporation (a calendar year taxpayer) has taxable income of $300,000, and its financial records reflect the following for the year. Rose Corporation's current E & P is:

Which of the following is a correct statement regarding a redemption to pay death taxes under § 303?

Pheasant Corporation, a calendar year taxpayer, has $400,000 of current E & P and a deficit in accumulated E & P of $180,000. If Pheasant pays a $600,000 distribution to its shareholders on July 1, how much dividend income do the shareholders report?

An Introduction to Taxation and Understanding the Federal Tax Law

Working with the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: In General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters