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Exam 7: Corporate Taxation: Non-Liquidating Distributions

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Question 21

True/False

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

A) True
B) False

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Question 22

Multiple Choice

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Catamount Company had current and accumulated E&P of $505,000 at December 31, 20X3. On December 31, the company made a distribution of land to its sole shareholder, Caroline West. The land's fair market value was $205,000 and its tax and E&P basis to Catamount was $252,500. The tax consequences of the distribution to Catamount in 20X3 would be:

A) No loss recognized and a reduction in E&P of $252,500.
B) $47,500 loss recognized and a reduction in E&P of $252,500.
C) $47,500 loss recognized and a reduction in E&P of $157,500.
D) No loss recognized and a reduction in E&P of $205,000.

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

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Question 23

Multiple Choice

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Wonder Corporation declared a common stock distribution to all shareholders of record on September 30, 20X3. Shareholders will receive three shares of Wonder stock for each five shares of stock they already own. Diana owns 300 shares of Wonder stock with a tax basis of $90 per share (a total basis of $27,000) . The fair market value of the Wonder stock was $180 per share on September 30, 20X3. What are the tax consequences of the stock distribution to Diana?

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

Stock distributions are always tax-free to the recipient shareholder.

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Assuming sufficient E&P, the amount of dividend reported by the shareholder is $200,000.

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.

Tiger Corporation, a privately held company, has one class of voting common stock, of which 1,700 shares are issued and outstanding. The shares are owned as follows: How many shares of stock is Mark deemed to own under the family attribution rules in a stock redemption?

Tiger 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: How many shares of stock is Mark deemed to own under the family attribution rules in a stock redemption?

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 40percent 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?

Lansing Company is owned equally by Jennifer, her husband, Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is DeWitt Corporation deemed to own?

Buckeye Company is owned equally by James and his brother Terrelle, each of whom owns 500 shares in the company. Terrelle wants to reduce his ownership in the company, and it was decided that the company will redeem 200 of his shares for $5,000 per share on December 31, 20X3. Terrelle's income tax basis in each share is $1,000. Buckeye has current E&P of $10,000,000 and accumulated E&P of $20,000,000. What is the amount and character (capital gain or dividend) recognized by Terrelle because of the stock redemption?

Green Corporation has a deficitin current E&P of ($100,000) and positive accumulated E&P of $250,000. A $50,000 distribution from Green to its sole shareholder at year-end will be treated as a dividend.

A distribution from a corporation to a shareholder will only be treated as a dividend for tax purposes if the distribution is paid out of current or accumulated E&P.

A calendar-year corporation has positive current E&P of $500 and a deficit in accumulated E&P of ($1,200) . The corporation makes a $400 distribution to its sole shareholder. Which of the following statements is true?

Comet Company is owned equally by Pat and his sister Pam, each of whom holds 105 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 54 of her shares for $1,080 per share on December 31, 20X3. Pam's income tax basis in each share is $400. Comet has total E&P of $300,000. What are the tax consequences to Pam because of the stock redemption?

Catamount Company 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, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in 20X3 would be:

Beaver Company reports current E&P of $100,000 in 20X3 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in 20X3?

Beltway Company is owned equally by George, his brother Thomas, and a partnership owned 50 percent by George and his father, Abe. Each of the three shareholders holds 120 shares in the company. Under the §318 stock attribution rules, how many shares of Beltway stock is George deemed to own?

Aztec Company reports current E&P of $200,000 in 20X3 anda deficit of ($100,000) in accumulated E&P at the beginning of the year. Aztec distributed $300,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3?