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Exam 13: Corporations: Earnings and Profits and Distributions

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Question 51

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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 2019. a. Increase b. Decrease c. No effect -Meal expense not deducted in 2019 because of the 50% limitation.

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Question 52

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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 2019. a. Increase b. Decrease c. No effect -Penalties paid to state government for failure to comply with state law.

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Question 53

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Glenda is the sole shareholder of Condor Corporation.She sold her stock to Melissa on October 31 for $150,000. Glenda's basis in Condor stock was $50,000 at the start of the year.Condor distributed land to Glenda immediately before the sale.Condor's basis in the land was $20,000 (fair market value of $25,000) .On December 31, Melissa received a $75,000 cash distribution from Condor.During the year, Condor has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000.Which of the following statements is true?

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

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 2019. a. Increase b. Decrease c. No effect -Dividends received deduction.

Seven years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 2,000 shares of Blue Corporation in a transaction that qualified under § 351.The assets had a tax basis to her of $400,000 and a fair market value of $700,000 on the date of the transfer.In the current year, Blue Corporation (E & P of $1 million) redeems 600 shares from Eleanor for $260,000 in a transaction that does not qualify for sale or exchange treatment.With respect to the redemption, Eleanor will have a:

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

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 2019. a. Increase b. Decrease c. No effect -Excess capital loss in year incurred.

A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to 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 2019. a. Increase b. Decrease c. No effect -Interest received from municipal bonds in 2019.

As a result of a redemption, a shareholder's interest (direct and indirect) in the corporation decreased from 80% to 55%.The redemption qualifies for sale or exchange treatment as a disproportionate redemption.

As of January 1, Cassowary Corporation has a deficit in accumulated E & P of $100,000.For the tax year, current E & P (accrued ratably) is $240,000 (prior to any distributions) .On July 1, Cassowary Corporation distributes $275,000 to its sole shareholder.The amount of the distribution that is a dividend is:

Starling Corporation has accumulated E & P of $60,000 on January 1, 2019.In 2019, Starling Corporation had an operating loss of $80,000.It distributed cash of $40,000 to Zoe, its sole shareholder, on December 31, 2019.Starling Corporation's balance in its E & P account as of January 1, 2020, is:

A corporation borrows money to purchase State of Texas bonds.The interest on the loan has no impact on either taxable income or current E & P.

How does the payment of a property dividend affect E & P?

Timothy owns 100% of Forsythia Corporation's stock.Corporate employees and annual salaries include Timothy ($300,000); Richard, Timothy's son ($80,000); Rita, Timothy's daughter ($100,000); and Sandy ($120,000).The operation of Forsythia Corporation is shared about equally between Timothy and Sandy (an unrelated party).Richard and Rita are full-time college students at a university about 150 miles away.Forsythia Corporation has substantial E & P but has not distributed a dividend for the past five years.Discuss problems related to the salary arrangement for Forsythia Corporation.

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

To determine current E & P, taxable income must be increased for any dividends received deduction.

Silver Corporation, a calendar year taxpayer, has taxable income of $550,000.Among its transactions for the year are the following: Disregarding any provision for Federal income taxes, Silver Corporation's current E & P is: