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Exam 13: Corporations: Earnings and Profits and Distributions

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Question 31

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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. -Dividends received deduction.

A) Increase
B) Decrease
C) No effect

D) None of the above
E) B) and C)

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Question 32

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At the beginning of the current year, Paul and John each own 50% of Apple Corporation.In July, Paul sold his stock to Sarah for $110,000.At the beginning of the year, Apple Corporation had accumulated E & P of $200,000 and its current E & P is $250,000 prior to any distributions).Apple distributed $260,000 on March 1 $130,000 to Paul and $130,000 to John) and distributed another $260,000 on October 1 $130,000 to Sarah and $130,000 to John).What are the tax implications of the $130,000 distribution to Sarah?

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As current E & P is allocated on a pro r...

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Question 33

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Rust Corporation distributes property to its sole shareholder, Andre.The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000.Current E & P is $500,000.With respect to the distribution, which of the following statements is correct?

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?

Which one of the following statements about property distributions is false?

Corporate shareholders generally receive less favorable tax treatment from a qualifying stock redemption than from a dividend distribution.

In a property distribution, the amount of dividend income recognized by a shareholder is always reduced by the amount of liability assumed by a shareholder.

Jen, the sole shareholder of Mahogany Corporation, sold her stock to Jason on July 1 for $90,000.Jen's stock basis at the beginning of the year was $60,000.Mahogany made a $30,000 cash distribution to Jen immediately before the sale, while Jason received a $60,000 cash distribution from Mahogany on November 1.As of the beginning of the current year, Mahogany had $16,000 in accumulated E & P, while current E & P before distributions) is $30,000.What are the tax consequences of these transactions to Jen and Jason?

When current E & P has a deficit and accumulated E & P is positive, the two accounts are netted at the date of the distribution.If a positive balance results, the distribution is a dividend to the extent of the balance.

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:

Tanya is in the 32% tax bracket.She acquired 1,000 shares of stock in Swan Corporation seven years ago for $100 a share.In the current year, Swan Corporation E & P of $1.2 million) redeems all of her shares for $160,000.What are the income tax consequences to Tanya if: a.If the redemption qualifies for sale or exchange treatment, Tanya will have a long-term capital gain of $60,000 [$160,000 amount realized) - $100,000 stock basis)].Her income tax liability on the $60,000 gain will be $9,000 $60,000 × a.The redemption qualifies for sale or exchange treatment, and Tanya has no other transactions in the current year involving capital assets? b.The redemption does not qualify for sale or exchange treatment?

Charitable contribution carryforward deducted in the current year.

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

Provide a brief outline on computing current E & P.

Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.

Purple Corporation has accumulated E & P of $100,000 on January 1, 2018.In 2018, Purple has current E & P of $130,000 before any distribution) .On December 31, 2018, the corporation distributes $250,000 to its sole shareholder, Cindy an individual) .Purple Corporation's E & P as of January 1, 2019 is:

Yolanda owns 60% of the outstanding stock of Amber Corporation.In a qualifying stock redemption, Amber distributes $20,000 to Yolanda in exchange for one-half of her shares basis of $35,000).As a result of the redemption, Yolanda has a recognized capital loss of $15,000.

Federal income tax refunds from tax paid in prior years.

A corporation borrows money to purchase State of Texas bonds.The interest on the loan has no impact on either taxable income or current E & P.

Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2019.Among its transactions for the year are the following: Disregarding any provision for Federal income taxes, determine Kite Corporation's current E & P for 2019.