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Exam 19: Corporations: Distributions Not in Complete Liquidation

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Question 31

True/False

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Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.

A) True
B) False

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Question 32

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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:

A) $254,000.
B) $214,000.
C) $194,000.
D) $104,000.
E) None of the above.

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

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Question 33

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

Which of the following is a correct statement regarding a redemption to pay death taxes under § 303?

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:

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 2018. a. Increase b. Decrease c. No effect -A decrease in the LIFO recapture amount during the year.

Brett owns stock in Oriole Corporation (basis of $100,000) as an investment. Oriole distributes property (fair market value of $375,000? basis of $187,500) to him during the year. Oriole has current E & P of $25,000 (which includes the E & P gain on the property distribution) , accumulated E & P of $100,000, and makes no other distributions during the year. What is Brett's capital gain on the distribution?

How does the definition of accumulated E & P differ from the definition of current E & P?

Albatross Corporation acquired land for investment purposes in 2004 at a cost of $100,000. Albatross sold the land to Monty on December 30, 2018, 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 2019 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 2018 and 2019.

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:

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 2018. a. Increase b. Decrease c. No effect -Gain on installment sale in 2018 deferred until 2019.

Which of the following statements regarding constructive dividends is not correct?

Raul's gross estate includes 1,500 shares of stock of Orange Corporation (basis to Raul of $1.2 million, fair market value on date of death of $8.2 million). The estate will incur $4.4 million of death taxes and funeral and administration expenses, and the adjusted gross estate is $18 million. Denise, Raul's daughter and sole heir of his estate, owns the remaining 500 shares of Orange Corporation's shares outstanding. In the current year, Orange (E&P of $10 million) redeems all of the estate's 1,500 shares for $8.2 million. What are the tax consequences of the redemption to Raul's estate?

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

No E & P adjustment is required for regular tax gains under the installment method.

Property distributed by a corporation as a dividend is subject to a liability in excess of its basis. For purposes of determining gain on the distribution, the basis of the property is treated as being not less than the amount of liability.

Pheasant Corporation, a calendar year taxpayer, has $400,000 of current E & P and a deficit in accumulated E & P of $180,000. If Pheasant pays a $600,000 distribution to its shareholders on July 1, how much dividend income do the shareholders report?

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.

On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, while Tom's basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?

Penguin Corporation purchased bonds (basis of $190,000) of its 100% owned subsidiary, Finch Corporation, at a discount. Pursuant to a § 332 liquidation and in satisfaction of the indebtedness, Finch distributes land worth $200,000 (basis of $160,000) to Penguin. Which of the following statements is correct with respect to the distribution of land?