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Exam 19: Corporations: Distributions Not in Complete Liquidation

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Question 51

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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?

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

F) A) and B)
G) C) and D)

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Question 52

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Sylvia owns 25% of Cormorant Corporation.Cormorant sells diamonds to retail jewelry businesses.While Cormorant has a deficit in accumulated E & P of $56,000 at the beginning of the year,its current E & P is $500,000.Since the company had a successful year,Cormorant pays a $36,000 distribution to each of the company's four shareholders on December 15.Three shareholders receive cash,but Cormorant distributes a diamond (adjusted basis of $40,000 and a fair market value of $36,000) to Sylvia in lieu of cash.Determine the effect of distributing the diamond on Cormorant's and on Sylvia's taxable income.What is Sylvia's basis in the diamond? Was the distribution good tax planning on the part of Cormorant? Why or why not?

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Losses on distributed property are not r...

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Question 53

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Nondeductible meal and entertainment expenses must be subtracted from taxable income to determine current E & P.

When computing E & P,taxable income is not adjusted for § 179 expense.

Which of the following is not a consequence of the double tax on dividends?

Provide a brief outline on computing current E & P.

Keshia owns 200 shares in Parakeet Corporation.Keshia has a 30% beneficiary interest in her deceased grandmother's estate.The estate owns 400 shares in Parakeet Corporation.None of the other beneficiaries of the estate own stock in Parakeet.In applying the § 318 attribution rules:

Explain the requirements for the termination of a business test for purposes of a partial liquidation.Why is this test generally preferable over the genuine contraction of a corporate business test for qualifying a distribution as a partial liquidation?

Matching 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 2017. a.Increase b.Decrease c.No effect -Loss on sale between related parties in 2017.

All cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will be taxed as dividend income.

Robin Corporation,a calendar year taxpayer,has a deficit in current E & P of $200,000 and a $580,000 positive balance in accumulated E & P.If Robin determines that a $700,000 distribution to its shareholders is appropriate at some point during the year,what is the maximum amount of the distribution that could potentially be treated as a dividend?

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?

Under certain circumstances,a distribution can generate (or add to) a deficit in E & P.

In June of the current year,Marigold Corporation declares a $4 dividend out of E & P on each share of common stock to shareholders of record on August 1.Ellen and Tim each purchase 100 shares of Marigold stock on July 1.On July 15,Ellen also purchases a short position in Marigold.Tim sells 50 of his shares on August 10 and continues to hold the remaining 50 shares through the end of the year.Ellen closes her short position in Marigold on October 15.With respect to the dividends,which of the following is correct?

Thrush,Inc.,is a calendar year,accrual basis corporation with Henry as its sole shareholder (basis in his stock is $90,000).On January 1 of the current year,Thrush Corporation has accumulated E & P of $200,000.Before considering the effect of the distribution described below,the corporation's current E & P is $50,000.On November 1,Thrush distributes an office building to Henry.The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $110,000.Assume that the building has been depreciated using the ADS method for both income tax and E & P purposes.What are the tax consequences of the distribution to Thrush and to Henry? (In your answer,be sure to describe the effects on taxable income for both Thrush and Henry,the impact of the distribution on Thrush's E & P,and Henry's basis in the building.)

Purple Corporation makes a property distribution to its sole shareholder,Paul.The property distributed is a house (fair market value of $189,000; basis of $154,000) that is subject to a $245,000 mortgage that Paul assumes.Before considering the consequences of the distribution,Purple's current E & P is $35,000 and its accumulated E & P is $140,000.Purple makes no other distributions during the current year.What is Purple's taxable gain on the distribution of the house?

Matching 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 2017. a.Increase b.Decrease c.No effect -Meal and entertainment expenses not deducted in 2017 because of the 50% limitation.

Finch Corporation distributes property (basis of $225,000,fair market value of $300,000) to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $160,000,which the shareholder assumes.The basis of the property to the shareholder is:

When computing current E & P,taxable income must be adjusted for the deferred gain in a § 1031 like-kind exchange.

Federal income tax paid in the current year must be subtracted from taxable income to determine E & P.