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Exam 18: Corporate Taxation: Nonliquidating Distributions

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Question 31

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Orchard,Inc.reported taxable income of $800,000 in 20X3 and paid federal income taxes of $272,000.Included in the company's computation of taxable income is gain from sale of a depreciable asset of $200,000.The income tax basis of the asset was $50,000.The E&P basis of the asset using the alternative depreciation system was $75,000.Compute the company's current E&P for 20X3.

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Question 32

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Au Sable Corporation reported taxable income of $800,000 in 20X3 and paid federal income taxes of $272,000.Not included in the computation was a disallowed penalty of $25,000,life insurance proceeds of $100,000,and a federal income tax refund from 20X2 of $50,000.Au Sable is an accrual-basis taxpayer.The corporation's current E&P for 20X3 would be:

A) $875,000.
B) $653,000.
C) $603,000.
D) $553,000.

E) All of the above
F) A) and C)

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Question 33

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Which of the following stock distributions would be tax-free to the shareholder?

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.

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

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:

Siblings are considered "family" under the stock attribution rules that apply to stock redemptions.

A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

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

Houghton Company reports a deficit in current E&P of ($500,000)and a deficit in accumulated E&P of ($800,000).Houghton distributed $100,000 to its sole shareholder,Blossom Applegate,on December 31,20X3.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?

Sunapee Corporation reported taxable income of $700,000 from operations for 20X3.During the year,the company made a distribution of land to its sole shareholder,Jean McCarthy.The land's fair market value was $125,000 and its tax and E&P basis to Sunapee was $75,000.Jean assumed a mortgage attached to the land of $25,000.Sunapee's tax rate is 21 percent.Compute Sunapee's total taxable income and federal income tax paid because of the distribution.Using your solution,compute Sunapee's current E&P for 20X3.

Austin Company reports positive current E&P of $200,000 and a deficit in accumulated E&P of ($300,000).Austin distributed $250,000 to its sole shareholder,Betsy Bevo,on December 31,20X3.Betsy's tax basis in her stock is $125,000.How much of the $250,000 distribution is treated as a dividend to Betsy,and what is her tax basis in Austin stock after the distribution?

Elk Company reports a deficit in current E&P of ($200,000)and positive accumulated E&P of $300,000.Elk distributed $200,000 to its sole shareholder,Barney Rubble,on December 31,20X3.Barney's tax basis in his Elk stock is $75,000.What is the tax treatment of the distribution to Barney,and what is his tax basis in Elk stock after the distribution?

Which of the following forms of earnings distributions would not be subject to double taxation at the corporate and shareholder level?

Terrapin Corporation incurs federal income taxes of $250,000 in 20X3.Terrapin deducts the federal income taxes in computing its current E&P for 20X3.

Superior Corporation reported taxable income of $1,000,000 in 20X3.Superior paid a dividend of $100,000 to its sole shareholder,Mary Yooper.Superior Corporation is subject to a flat-rate tax of 21 percent.The dividend meets the requirements to be a "qualified dividend," and Mary is subject to a tax rate of 15 percent on the dividend.What is the total federal income tax imposed on the corporate income earned by Superior,including taxes on the amount distributed to Mary as a dividend?

Bruin Company reports current E&P of $200,000 in 20X3 and accumulated E&P at the beginning of the year of $100,000.Bruin distributed $400,000 to its sole shareholder on January 1,20X3.How much of the distribution is treated as a dividend in 20X3?

Only taxable income and deductible expenses are included in the computation of current E&P.

Geneva Corporation,a privately held company,has one class of voting common stock,of which 1,000 shares are issued and outstanding.The shares are owned as follows: Madison has a 20 percent interest in the partnership.The remaining 80 percent is owned by unrelated individuals.Madison owns 40 percent of Packer Corporation.The other 60 percent is owned by her father. How many shares of stock is Madison deemed to own under the family attribution rules in a stock redemption?

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