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Exam 7: Corporate Taxation: Nonliquidating Distributions

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Question 1

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

A) Federal income taxes paid.
B) Current charitable contributions in excess of 10 percent limitation.
C) Current-year net capital loss.
D) All of the choices are subtractions from taxable income in computing current E&P.

E) B) and D)
F) A) and D)

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Question 2

Multiple Choice

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Oakland Corporation reported a net operating loss of $500,000 in 20X3 and elected to carry the loss forward to 20X4. Not included in the computation was a disallowed meals and entertainment expense of $20,000, tax-exempt income of $10,000, and deferred gain on a current-year transaction treated as an installment sale of $250,000. The corporation's current E&P for 20X3 would be:

A) ($500,000) .
B) ($720,000) .
C) ($510,000) .
D) ($260,000) .

E) C) and D)
F) All of the above

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Question 3

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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?

Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

Which of the following statements best describes current E&P?

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?

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Yellowstone Corporation made a distribution of $300,000 to Cheney, Inc. in partial liquidation of the company on December 31, 20X3. Cheney, Inc. owns 50 percent of Yellowstone Corporation (1,000 shares). The other 50 percent is owned by an unrelated corporation. The distribution was in exchange for 50 percent of Cheney's stock in the company (500 shares). At the time of the distribution, the shares had a fair market value of $800 per share. Cheney's income tax basis in the shares was $500 per share. Yellowstone had total E&P of $5,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Cheney as a result of the partial liquidation?

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

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 Jennifer deemed to own?

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

This year Truckit reported taxable income of $160,000 and received $20,000 of municipal interest. Truckit paid $55,000 in entertainment expenses and $15,000 in fines and penalties. Truckit had $50,000 of accumulated E&P at the beginning of the year. What is Truckit's current E&P?

Pine Creek Company is owned equally by Bob and his sister Samantha, each of whom own 1,000 shares in the company. On December 31, 20X3, Pine Creek redeemed 200 of Samantha's shares for $5,000,000 in a transaction treated as an exchange by Samantha. Pine Creek has current E&P of $10,000,000 and accumulated E&P of $30,000,000 (computed without regard to the stock redemption). Assuming Pine Creek did not make any dividend distributions during 20X3, by what amount does the company reduce its E&P because of the redemption?

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. Evergreen will report a gain of $150,000 on the distribution regardless of whether its E&P is positive or negative.

Which of the following stock distributions would be tax-free to the shareholder?

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

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

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

A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

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: