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Exam 7: Corporate Taxation: Non-Liquidating Distributions

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Question 51

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Packard Corporation reported taxable income of $1,000,000 in 20X3 and paid federal income taxes of $340,000. Included in the taxable income computation was a dividends received deduction of $5,000, a net capital loss carryover from 20X2 of $10,000 utilized in 20X3, and gain of $50,000 recognized on the collection of cash from an installment sale that took place in 20X1. The corporation's current E&P for 20X3 would be:

A) $1,015,000.
B) $965,000.
C) $675,000.
D) $625,000.

E) A) and B)
F) None of the above

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Question 52

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Montclair 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, Molly Pitcher. The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000. Molly assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Montclair in 20X3 would be:

A) No gain recognized and a reduction in E&P of $200,000.
B) $150,000 gain recognized and a reduction in E&P of $200,000.
C) $150,000 gain recognized and a reduction in E&P of $175,000.
D) No gain recognized and a reduction in E&P of $175,000.

E) A) and C)
F) None of the above

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Question 53

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Viking Corporation is owned equally by Sven and his wife, Olga, each of whom holds 100 shares in the company. Viking redeemed 75 shares of Sven's stock for $2,000 per share on December 31, 20X3. Viking has total E&P of $500,000. What are the tax consequences to Viking because of the stock redemption?

General Inertia Corporation made a pro rata distribution of $50,000 to Tiara, Incorporated in partial liquidation of the company on December 31, 20X3. Tiara, Incorporated owns 500 shares (50 percent) of General Inertia. The distribution was in exchange for 250 shares of Tiara's stock in the company. After the partial liquidation, Tiara continued to own 50percent of the remaining stock in General Inertia. At the time of the distribution, the shares had a fair market value of $200 per share. Tiara's income tax basis in the shares was $100 per share. General Inertia had total E&P of $800,000 at the time of the distribution. What amount of dividend or capital gain does Tiara recognize because of the transaction?

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 shareholderat year-end will not be treated as a dividend because total E&P is a deficit ($100,000).

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

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

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?

Sherburne Corporation reported current E&P for 20X3 of $500,000. During the year, the company made a distribution of land to its sole shareholder, Ted Bozeman. The land's fair market value was $150,000 and its tax and E&P basis to Sherburne was $100,000. Ted assumed a mortgage attached to the land of $25,000. What amount of dividend income does Ted report because of the distribution, and what is Ted's income tax basis in the land received from Sherburne?

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:

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?

Which of the following are subtractions from taxable income in computing current E&P?

El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, 20X3. Shareholders will receive one share of El Toro stock for each two shares of stock they already own. Raoul owns 350 shares of El Toro stock, with a tax basis of $81 per share. The fair market value of the El Toro stock was $121 per share on June 30, 20X3. What are the tax consequences of the stock distribution to Raoul?

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 statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

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.

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?

SaintClair Company reports positive current E&P of $500,000 in 20X3 and positive accumulated E&P at the beginning of the year of $400,000. SaintClair Company distributed $600,000 to its sole shareholder, Danielle Brush, on December 31, 20X3. Danielle's tax basis in her SaintClair stock is $120,000. How much of the $600,000 distribution is treated as a dividend to Danielle, and what is her basis in SaintClair stock after the distribution?

Sam owns 55 percent of the stock of Club Corporation. Unrelated individuals own the remaining 45 percent. For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption?

Walloon, Incorporated reported taxable income of $1,000,000 in 20X3 and paid federal income taxes of $210,000. The company reported a capital gain from sale of investments of $150,000, which was partially offset by a $40,000 net capital loss carryover from 20X2, resulting in a net capital gain of $110,000 included in taxable income. Compute the company's current E&P for 20X3.