Exam 14: Corporate Nonliquidating and Liquidating Distributions

Which of the following payments could be treated as a constructive dividend by the IRS?

Oakland Corporation reported a net operating loss of $500,000 in year 1 and elected to carry the loss forward to year 2. Not included in the computation was a disallowed meals and entertainment expense of $20,000, tax exempt income of $10,000, and deferred gain on an installment sale of $250,000. The corporation's current earnings and profits for year 1 would be:

Brothers and sisters are considered "family" under the stock attribution rules that apply to stock redemptions.

Montclair Corporation had current and accumulated E&P of $500,000 at December 31, year 1. On December 31, the company made a distribution of land to its sole shareholder, Molly Pitcher. The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000. Molly assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Montclair in year 1 would be:

Evergreen Corporation distributes land with a fair market value of $50,000 to its sole shareholder. Evergreen's tax basis in the land is $200,000. Evergreen will report a loss of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

A stock redemption is always treated as a sale or exchange for tax purposes.

Crescent Corporation is owned equally by George and his daughter Olympia, each of whom own 100 shares in the company. George wants to retire from the company, and it was decided that the company will redeem all 100 of his shares for $10,000 per share on December 31, year 1. George's income tax basis in each share is $2,000. Crescent has current E&P of $1,000,000 and accumulated E&P of $5,000,000. What must George do to ensure that the redemption will be treated as an exchange?

Green Corporation has current earnings and profits of $100,000 and negative accumulated earnings and profits of $(200,000). A $50,000 distribution from Green to its sole shareholder will not be treated as a dividend because total earnings and profits is a negative $100,000.

Beaver Company reports current E&P of $100,000 in year 1 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, year 1. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in year 1?

Sara owns 80 percent of the stock of Lea Corporation. Unrelated individuals own the remaining 20 percent. For a stock redemption of Sara's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Lea stock must Sara own after the redemption?

A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes.

A liquidating corporation always recognizes loss realized in a complete liquidation where none of the shareholders is a corporation.

Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

Houghton Company reports negative current E&P of $(500,000) and negative accumulated E&P of $(800,000). Houghton distributed $100,000 to its sole shareholder, Blossom Applegate, on December 31, year 1. Blossom's tax basis in her Houghton stock is $50,000. What is the tax treatment of the distribution to Blossom and what is her tax basis in Houghton stock after the distribution?

Loon, Inc. reported taxable income of $600,000 in year 1 and paid federal income taxes of $202,000. Not included in the company's computation of taxable income is tax-exempt interest of $30,000, disallowed meals and entertainment expenses of $15,000, and disallowed expenses related to the tax-exempt income of $4,000. Loon deducted depreciation of $200,000 on its tax return. Under the alternative (E&P) depreciation method, the deduction would have been $80,000. Compute the company's current E&P for year 1.

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Assuming sufficient earnings and profits, the amount of dividend reported by the shareholder is $200,000.

Wildcat Corporation reports current E&P of negative $200,000 in year 1 and accumulated E&P at the beginning of the year of $100,000. Wildcat distributed $300,000 to its sole shareholder on December 31, year 1. How much of the distribution is treated as a dividend in year 1?

Tammy owns 60 percent of the stock of Huron Corporation. Unrelated individuals own the remaining 40 percent. For a stock redemption to be treated as an exchange under the "substantially disproportionate" rule, Tammy must reduce her stock ownership to below 48 percent.

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Comet redeems 50 of Pam's shares on December 31, year 1, for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes. Comet has total E&P of $160,000 on December 31, year 1. What are the tax consequences to Comet as a result of the stock redemption?