FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 19: Corporations: Distributions Not in Complete Liquidation

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 91

Multiple Choice

Review LaterAdd Note

Review Later

Ten years ago,Carrie purchased 2,000 shares of common stock in Osprey Corporation for $20,000.In the current year,Carrie receives a nontaxable stock dividend of 20 shares of Osprey preferred.Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common.Based on this information,Carrie's basis in the stock is:

A) $20,000 in the common and $8,000 in the preferred.
B) $2,000 in the common and $18,000 in the preferred.
C) $18,000 in the common and $2,000 in the preferred.
D) $19,802 in the common and $198 in the preferred.
E) None of the above.

F) C) and D)
G) C) and E)

Correct Answer

verified

Show Answer

Question 92

True/False

Review LaterAdd Note

Review Later

Constructive dividends have no effect on a distributing corporation's E & P.

A) True
B) False

Correct Answer

verified

Show Answer

Question 93

Essay

Review LaterAdd Note

Albatross Corporation acquired land for investment purposes in 2003 at a cost of $100,000.Albatross sold the land to Monty on December 30,2017,and did not elect out of the installment method of accounting.The selling price of the property was $400,000.Monty made a cash down payment of $50,000 on the date of sale and executed a $350,000 note,payable in seven annual installments of $50,000 each plus interest at the rate of 6% per annum.The first installment of $50,000 was due in 2018 which Monty paid,plus interest of $21,000.Discuss the effect of this sale on Albatross's taxable income and its E & P account in 2017 and 2018.

Purple Corporation has accumulated E & P of $100,000 on January 1,2017.In 2017,Purple has current E & P of $130,000 (before any distribution) .On December 31,2017,the corporation distributes $250,000 to its sole shareholder,Cindy (an individual) .Purple Corporation's E & P as of January 1,2018 is:

Briefly discuss the rules related to distributions of non-cash property.

Ashley,the sole shareholder of Hawk Corporation,has a stock basis of $200,000 at the beginning of the year.On July 1,she sells all of her stock to Matt for $1 million.On January 1,Hawk has accumulated E & P of $90,000 and during the year,current E & P of $160,000.Hawk makes the following cash distributions: $270,000 to Ashley on March 31 and $90,000 to Matt on December 1.How are the distributions taxed to Ashley and Matt? What is Ashley's recognized gain on the sale to Matt?

​ 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 -Charitable contribution carryforward deducted in the current year.

Pink Corporation declares a nontaxable dividend payable in rights to subscribe to common stock.Each right entitles the holder to purchase one share of stock for $25.One right is issued for every two shares of stock owned.Jack owns 100 shares of stock in Pink,which he purchased three years ago for $3,000.At the time of the distribution,the value of the stock is $45 per share and the value of the rights is $2 per share.Jack receives 50 rights.He exercises 25 rights and sells the remaining 25 rights three months later for $2.50 per right.

Vireo Corporation redeemed shares from its sole shareholder pursuant to a written agreement between the parties that clearly identified the transaction as a stock redemption (and not a dividend distribution).Since the agreement is binding under state law,the shareholder will receive sale or exchange treatment with respect to the redemption.

​ 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 -Proceeds of life insurance received upon the death of a key employee (policy had no cash surrender value).

Lupe and Rodrigo,father and son,each own 50% of the stock outstanding of Heron Corporation (E & P of $400,000) .During the current year,Heron redeems all of Lupe's shares for $250,000.The transaction cannot qualify as a complete termination redemption if:

Six years ago,Ronald and his mom each owned 50% of the stock of Bronze Corporation.At such time,Bronze redeemed all of Ronald's stock.For the redemption year,Ronald filed the agreement required of the family attribution waiver and reported the transaction as a complete termination redemption (i.e.,sale or exchange).In the current year,the mom passed away and willed her entire stock interest in Bronze to Ronald.The inheritance of Bronze stock by Ronald is a prohibited interest for purposes of the family attribution waiver.

For purposes of a partial liquidation,the termination of a business test is a subjective test that should be relied upon only after obtaining a favorable ruling from the IRS.

Do noncorporate and corporate shareholders typically have the same preference for the tax treatment of a stock redemption? Explain.

Bristlebird Corporation (E & P of $700,000) has 3,000 shares of common stock outstanding.Juan owns 1,500 shares and his wife,Roberta,owns 1,500 shares.Juan and Roberta each have a basis of $90,000 in their Bristlebird stock.In the current year,Bristlebird Corporation redeems 1,000 shares from Juan for $250,000.With respect to the distribution in redemption of the Bristlebird stock:

Betty's adjusted gross estate is $9 million.The death taxes and funeral and administration expenses of her estate total $1.2 million.Included in Betty's gross estate is stock in Heron Corporation,valued at $3.3 million as of the date of her death.Betty had acquired the stock six years ago at a cost of $810,000.If Heron Corporation redeems $1.2 million of Heron stock from the estate,the transaction will qualify under § 303 as a redemption to pay death taxes and receive sale or exchange treatment.

Which one of the following statements about property distributions is false?

In the current year,Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations) : ​ Warbler Corporation is not a member of a controlled group.As a result of the distribution:

In a property distribution,the amount of dividend income recognized by a shareholder is always reduced by the amount of liability assumed by a shareholder.

Matching 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 -Section 179 expense in second year following election.