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Exam 7: Corporate Taxation: Nonliquidating Distributions

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Question 1

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Houghton Company reports negative current E&P of ($500,000)and negative 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?

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$0 dividend to Blossom,$50,000 tax-free ...

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The recipient of a tax-free stock dividend will have a zero tax basis in the stock.

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B) False

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Question 3

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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?

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:

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.

Viking Corporation is owned equally by Sven and his wife Olga,each of whom hold 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?

Grand River Corporation reported taxable income of $500,000 in 20X3 and paid federal income taxes of $170,000.Not included in the computation was a disallowed meals and entertainment expense of $2,000,tax-exempt income of $1,000,and deferred gain on a current year transaction treated as an installment sale of $25,000.The corporation's current earnings and profits for 20X3 would be:

Half Moon Corporation made a distribution of $300,000 to Arnold Swartz in partial liquidation of the company on December 31,20X3.Arnold owns 100% of Half Moon Corporation (1,200 shares).The distribution was in exchange for 50% of Arnold's stock in the company (600 shares).At the time of the distribution,the shares had a fair market value of $500 per share.Arnold's income tax basis in the shares was $250 per share.Half Moon had total E&P of $2,000,000 at the time of the distribution.What is the amount and character (capital gain or dividend)of any income or gain recognized by Arnold as a result of the partial liquidation?

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

A calendar-year corporation has negative current E&P of $500 and accumulated positive E&P of $1,000.The corporation makes a $600 distribution to its sole shareholder.Which of the following statements is true?

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 report a tax loss of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

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:

A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes.

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:

Viking Corporation is owned equally by Sven and his wife Olga,each of whom hold 100 shares in the company.Viking redeemed 75 shares of Sven's stock in the company on December 31,20X3.Viking paid Sven $2,000 per share.His income tax basis in each share is $1,000.Viking has total E&P of $500,000.What are the tax consequences to Sven because of the stock redemption?

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?

A stock redemption is always treated as a sale or exchange for tax purposes.

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 100 shares in the company.Under the §318 stock attribution rules,how many shares of Beltway stock is George deemed to own?

Corona Company is owned equally by Maria,her sister Carlita,her mother Gabriella,and her grandmother Olivia,each of whom hold 100 shares in the company.Under the family attribution rules,how many shares of Corona stock is Maria deemed to own?

Diego owns 30 percent of Azul Corporation.Azul Corporation owns 50 percent of Verde Corporation.Under the attribution rules applying to stock redemptions,Diego is treated as owning 15 percent of Verde Corporation.