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Exam 19: Corporations: Distributions Not in Complete Liquidation

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Question 31

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As of January 1,Cassowary Corporation has a deficit in accumulated E & P of $100,000.For the tax year,current E & P (accrued ratably) is $240,000 (prior to any distributions) .On July 1,Cassowary Corporation distributes $275,000 to its sole shareholder.The amount of the distribution that is a dividend is:

A) $20,000.
B) $140,000.
C) $240,000.
D) $275,000.
E) None of the above.

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

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Question 32

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A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property.

A) True
B) False

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Question 33

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Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years.

Rose Corporation (a calendar year taxpayer) has taxable income of $300,000,and its financial records reflect the following for the year. ​ Rose Corporation's current E & P is:

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

To qualify a partial liquidation under the termination of a business test,the distribution must consist of the assets of a qualified trade or business.

In the current year,Carnation Corporation has a § 179 expense of $20,000.As a result,in the current year,taxable income must be increased by $16,000 to determine current E & P.

The dividends received deduction has no impact on E & P.

A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.

When is a redemption to pay death taxes under § 303 most advantageous?

In applying the § 318 stock attribution rules to a stock redemption,a shareholder is treated as owning the stock of her spouse,children,grandchildren,parents,and siblings.

Stacey and Andrew each own one-half of the stock in Parakeet Corporation,a calendar year taxpayer.Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1.If Parakeet's current E & P is $60,000,how much is allocated to Andrew's distribution?

​ 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 -Intangible drilling costs deducted currently.

Briefly define the term "earnings and profits."

An increase in the LIFO recapture amount must be added to taxable income to determine E & P.

Which of the following statements is correct with respect to the § 338 election?

Regardless of any deficit in current E & P,distributions during the year are taxed as dividends to the extent of accumulated E & P.

Which of the following statements is correct with respect to a partial liquidation?

Lucinda owns 1,100 shares of Blackbird Corporation stock at a time when Blackbird has 2,000 shares of stock outstanding.The remaining shareholders are unrelated to Lucinda.What is the minimum number of shares Blackbird must redeem from Lucinda so that the transaction will qualify as a disproportionate redemption?

On January 1,Eagle Corporation (a calendar year taxpayer) has accumulated E & P of $300,000.During the year,Eagle incurs a net loss of $420,000 from operations that accrues ratably.On June 30,Eagle distributes $180,000 to Libby,its sole shareholder,who has a basis in her stock of $112,500.How much of the $180,000 is a dividend to Libby?