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Exam 7: Corporate Taxation: Non-Liquidating Distributions

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Question 1

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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 E&P, the amount of dividend reported by the shareholder is $200,000.

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B) False

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Question 2

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Yellowstone Corporation made a distribution of $300,000 to Cheney, Incorporated in partial liquidation of the company on December 31, 20X3. Cheney, Incorporated owns 50 percent of Yellowstone Corporation (1,000 shares). The other 50 percent is owned by an unrelated corporation. The distribution was in exchange for 50percent of Cheney's stock in the company (500 shares). At the time of the distribution, the shares had a fair market value of $800 per share. Cheney's income tax basis in the shares was $500 per share. Yellowstone had total E&P of $5,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Cheney as a result of the partial liquidation?

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$300,000 dividendA corporation receives ...

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Question 3

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Viking Corporation is owned equally by Sven and his wife, Olga, each of whom holds 125 shares in the company. Viking redeemed 80 shares of Sven's stock for $1,700 per share on December 31, 20X3. Viking has total E&P of $470,000. What are the tax consequences to Viking because of the stock redemption?

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

Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom holds 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Beaver Company reports current E&P of $100,000 in 20X3 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in 20X3?

Bruin Company reports current E&P of $250,000 in 20X3 and accumulated E&P at the beginning of the year of $125,000. Bruin distributed $450,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3?

A calendar-year corporation has deficit in current E&P of ($500) and positive accumulated E&P of $1,000. The corporation makes a $600 distribution to its sole shareholder. Which of the following statements is true?

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 deduct a tax loss of $150,000 on the distribution regardless of whether its E&P is positive or negative.

Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

Abbot Corporation reported a net operating loss of $400,000 in 20X3, which the corporation elected to carry forward to 20X4. Included in the computation of the taxable loss was regular depreciation of $100,000 (E&P depreciation is $40,000) , first-year expensing under §179 of $50,000, and a dividends received deduction of $10,000. The corporation's current E&P for 20X3 would be:

Cavalier Corporation had current and accumulated E&P of $500,000 at December 31 20X3. On December 31, the company made a distribution of land to its sole shareholder, Tom Jefferson. The land's fair market value was $200,000 and its tax and E&P basis to Cavalier was $50,000. The tax consequences of the distribution to Cavalier in 20X3 would be:

This year the shareholders in Lucky Corporation can choose between receiving an additional 100 shares of stock or cash of $100. Lucky's shareholders will be taxed on the distribution if Lucky has sufficient E&P.

Inca Company reportsa deficit in current E&P of ($100,000) in 20X3 and accumulated E&P at the beginning of the year of $200,000. Inca distributed $300,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3?

A distribution from a corporation to a shareholder will only be treated as a dividend for tax purposes if the distribution is paid out of current or accumulated E&P.

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

Comet Company is owned equally by Pat and his sister Pam, each of whom holds 100 shares in the company. Comet redeems 50 of Pam's shares on December 31, 20X3, for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes. Comet has total E&P of $250,000 on December 31, 20X3. What are the tax consequences to Comet because of the stock redemption?

Panda Company is owned equally by Min, her husband, Bin, her sister Xiao, and her grandson, Han, each of whom holds 100 shares in the company. Under the family attribution rules, how many shares of Panda stock is Min deemed to own?

Tar Heel Corporation had current and accumulated E&P of $500,000 at December 31 20X3. On December 31, the company made a distribution of land to its sole shareholder, William Roy. The land's fair market value was $100,000 and its tax and E&P basis to Tar Heel was $25,000. William assumed a mortgage attached to the land of $10,000. The tax consequences of the distribution to William in 20X3 would be:

Ozark Corporation reported taxable income of $500,000 from operations for 20X3. During the year, the company made a distribution of land to its sole shareholder, Marcus Twain. The land's fair market value was $100,000 and its tax and E&P basis to Ozark was $125,000. Marcus assumed a mortgage attached to the land of $25,000. Ozark's tax rate is 21 percent. The company had accumulated E&P of $850,000 at the beginning of the year. Compute Ozark's total taxable income and federal income tax paid because of the distribution. Using your solution, compute Ozark's accumulated E&P at January 1, 20X4.