Otter Corporation Reported Taxable Income of $400,000 from Operations for Year

Short Answer

Otter Corporation reported taxable income of $400,000 from operations for year 1. The company paid federal income taxes of $136,000 on this taxable income. During the year, the company made a distribution of land to its sole shareholder, Emmet Jugg. The land's fair market value was $50,000 and its tax and E&P basis to Otter was $30,000. Emmet assumed a mortgage attached to the land of $10,000. Any gain from the distribution will be taxed at 34%. The company had accumulated E&P of $900,000 at the beginning of the year. Compute Otter's total taxable income and federal income tax paid as a result of the distribution (assume a tax rate of 34%). Using your solution, compute Otter's current E&P for year 1.