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Exam 13: Corporations: Earnings and Profits and Distributions

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Question 31

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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 2019. a. Increase b. Decrease c. No effect -Additional first-year (bonus) depreciation deduction claimed in 2019.

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Question 32

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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 2019. a. Increase b. Decrease c. No effect -Gain realized but not recognized in a like-kind exchange transaction in 2019.

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Question 33

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A deficit in current E & P is treated as occurring ratably during the year unless the taxpayer can show otherwise.

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

At the beginning of the current year, both Doug and Amelia each own 50% of Amaryllis Corporation (a calendar year taxpayer) .In July, Doug sold his stock to Kevin for $140,000.At the beginning of the year, Amaryllis Corporation had accumulated E & P of $240,000 and its current E & P is $280,000 (prior to any distributions) .Amaryllis distributed $300,000 on February 15 ($150,000 to Doug and $150,000 to Amelia) and distributed another $300,000 on November 1 ($150,000 to Kevin and $150,000 to Amelia) .Kevin has dividend income of:

The Code treats corporate distributions that are a return of a shareholder's investment as sales or exchanges and corporate distributions that are a return from a shareholder's investment as dividends.

A shareholder's basis in property acquired in a stock redemption is the property's fair market value as of the date of redemption.

A distribution in excess of E & P is treated as capital gain by shareholders.

At the beginning of the current year, both Paul and John 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?

Maria owns 75% and Christopher owns 25% of Cockatoo Corporation, a calendar year taxpayer.Cockatoo makes a $600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1.Cockatoo's current E & P is $120,000 and its accumulated E & P is $500,000.What are the tax implications of the distributions to Maria and Christopher?

Nondeductible meal expense must be subtracted from taxable income to determine current E & P.

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 2019. a. Increase b. Decrease c. No effect -Charitable contribution carryforward deducted in the current year.

Ashley, the sole shareholder of Hawk Corporation, has a stock basis of $200,000 at the beginning of the year.On July 1, she sells all of her stock to Matt for $1 million.On January 1, Hawk has accumulated E & P of $90,000 and during the year, current E & P of $160,000.Hawk makes the following cash distributions: $270,000 to Ashley on March 31 and $90,000 to Matt on December 1.How are the distributions to Ashley and Matt taxed? What is Ashley's recognized gain on the sale to Matt?

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?

Briefly discuss the rules related to distributions of noncash property.

Gold Corporation has accumulated E & P of $2 million as of January 1 of the current year.During the year, it expects to have earnings from operations of $1,680,000 and to distribute $900,000 in cash to shareholders.Gold Corporation also expects to sell an asset for a loss of $2 million.Thus, it anticipates incurring a deficit of $320,000 for the year.What can Gold do to minimize the amount of dividend income to its shareholders?

Provide a brief outline on computing current E & P.

On January 1, Gold Corporation (a calendar year taxpayer) has E & P of $30,000 and generates no additional E & P during the year.On March 31, the corporation distributes $40,000 to its sole shareholder, Ava (basis in stock of $8,000).Determine the effect of the distribution on Ava's taxable income and stock basis.

To determine E & P, some (but not all) previously excluded income items are added back to taxable income.

Scarlet Corporation is an accrual basis, calendar year corporation.Scarlet distributes inventory (basis of $20,000; fair market value of $40,000) to Frank, its shareholder.Assuming that Scarlet has $500,000 of current E & P, what is the impact of the distribution on Scarlet Corporation and on Frank?