Chapter 18 corporate taxation nonliquidating distributions

Lanco paid federal income taxes this year of 6,400.

The company’s accumulated E&P at the beginning of the year was ,400,000.

The 500 outstanding shares are owned as follows: Nick Adams serves as President of PSQ, and his father Sandler serves as Chairman of the Board.

Amy is the company’s CFO, and Abigail and Charlie work as employees of the company. The redemption is tentatively scheduled to take place on December 31 of this year.

PSQ has always been a family owned business and has a single class of voting common stock outstanding.

(PSQ), a calendar year, accrual basis C Corporation, provides landscaping supplies to local builders in northern Michigan.

By what amount does EG reduce its total E&P as a result of the redemption under the following E&P assumptions? EG’s total E&P at the time of the distribution was ,000,000. [LO5] Spartan Corporation redeemed 25% of its shares for ,000 on July 1 of this year, in a transaction that qualified as an exchange under §302(a). Spartan had total E&P of ,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized per share by Rusty as a result of the partial liquidation? [LO6] Wolverine Corporation made a distribution of 0,000 to Rich Rod, Inc. The distribution was in exchange for 50% of Rich Rod, Inc.’s stock in the company.Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3. Terrapin Corporation incurs federal income taxes of 0,000 in 20X3. Oakland Corporation reported a net operating loss of 0,000 in 20X3 and elected to carry the loss forward to 20X4. Included in the taxable income computation was a dividends received deduction of ,000, a net capital loss carryover from 20X2 of ,000, and gain of ,000 from an installment sale that took place in 20X1. The corporation’s current earnings and profits for 20X3 would be: A. How is the distribution treated by the shareholder in 20X3? 0,000 dividend and 0,000 tax-free return of basis D.Terrapin deducts the federal income taxes in computing its current earnings and profits for 20X3. Evergreen Corporation distributes land with a fair market value of 0,000 to its sole shareholder. Assuming sufficient earnings and profits, the amount of dividend reported by the shareholder is 0,000. Evergreen Corporation distributes land with a fair market value of 0,000 to its sole shareholder. Evergreen will report a gain of 0,000 on the distribution regardless of whether its earnings and profits are positive or negative. Evergreen Corporation distributes land with a fair market value of ,000 to its sole shareholder. Evergreen will report a loss of 0,000 on the distribution regardless of whether its earnings and profits are positive or negative. Compensation recharacterized by the IRS as a dividend because it was considered “unreasonable” will affect only the income tax liability of the corporation paying the compensation. Unreasonable compensation issues are more likely to arise in audits of privately held corporations rather than publicly traded corporations. Stock dividends are always tax-free to the recipient. The recipient of a tax-free stock dividend will have a zero tax basis in the stock. The recipient of a taxable stock dividend will have a tax basis in the stock equal to the fair market value of the stock received. A stock redemption is always treated as a sale or exchange for tax purposes. Tammy owns 60 percent of the stock of Huron Corporation. Net capital loss carryforward from the prior year tax return D. Not included in the computation was a disallowed meals and entertainment expense of ,000, tax-exempt income of ,000, and deferred gain on an installment sale of 0,000. The corporation’s current earnings and profits for 20X3 would be: A.

By what amount does EG reduce its total E&P as a result of the redemption under the following E&P assumptions? EG’s total E&P at the time of the distribution was ,000,000. [LO5] Spartan Corporation redeemed 25% of its shares for ,000 on July 1 of this year, in a transaction that qualified as an exchange under §302(a). Spartan had total E&P of ,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized per share by Rusty as a result of the partial liquidation? [LO6] Wolverine Corporation made a distribution of 0,000 to Rich Rod, Inc. The distribution was in exchange for 50% of Rich Rod, Inc.’s stock in the company.

Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3. Terrapin Corporation incurs federal income taxes of 0,000 in 20X3. Oakland Corporation reported a net operating loss of 0,000 in 20X3 and elected to carry the loss forward to 20X4. Included in the taxable income computation was a dividends received deduction of ,000, a net capital loss carryover from 20X2 of ,000, and gain of ,000 from an installment sale that took place in 20X1. The corporation’s current earnings and profits for 20X3 would be: A. How is the distribution treated by the shareholder in 20X3? 0,000 dividend and 0,000 tax-free return of basis D.

Terrapin deducts the federal income taxes in computing its current earnings and profits for 20X3. Evergreen Corporation distributes land with a fair market value of 0,000 to its sole shareholder. Assuming sufficient earnings and profits, the amount of dividend reported by the shareholder is 0,000. Evergreen Corporation distributes land with a fair market value of 0,000 to its sole shareholder. Evergreen will report a gain of 0,000 on the distribution regardless of whether its earnings and profits are positive or negative. Evergreen Corporation distributes land with a fair market value of ,000 to its sole shareholder. Evergreen will report a loss of 0,000 on the distribution regardless of whether its earnings and profits are positive or negative. Compensation recharacterized by the IRS as a dividend because it was considered “unreasonable” will affect only the income tax liability of the corporation paying the compensation. Unreasonable compensation issues are more likely to arise in audits of privately held corporations rather than publicly traded corporations. Stock dividends are always tax-free to the recipient. The recipient of a tax-free stock dividend will have a zero tax basis in the stock. The recipient of a taxable stock dividend will have a tax basis in the stock equal to the fair market value of the stock received. A stock redemption is always treated as a sale or exchange for tax purposes. Tammy owns 60 percent of the stock of Huron Corporation. Net capital loss carryforward from the prior year tax return D. Not included in the computation was a disallowed meals and entertainment expense of ,000, tax-exempt income of ,000, and deferred gain on an installment sale of 0,000. The corporation’s current earnings and profits for 20X3 would be: A. [[

By what amount does EG reduce its total E&P as a result of the redemption under the following E&P assumptions? EG’s total E&P at the time of the distribution was $2,000,000. [LO5] Spartan Corporation redeemed 25% of its shares for $2,000 on July 1 of this year, in a transaction that qualified as an exchange under §302(a). Spartan had total E&P of $8,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized per share by Rusty as a result of the partial liquidation? [LO6] Wolverine Corporation made a distribution of $500,000 to Rich Rod, Inc. The distribution was in exchange for 50% of Rich Rod, Inc.’s stock in the company.

Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3. Terrapin Corporation incurs federal income taxes of $250,000 in 20X3. Oakland Corporation reported a net operating loss of $500,000 in 20X3 and elected to carry the loss forward to 20X4. Included in the taxable income computation was a dividends received deduction of $5,000, a net capital loss carryover from 20X2 of $10,000, and gain of $50,000 from an installment sale that took place in 20X1. The corporation’s current earnings and profits for 20X3 would be: A. How is the distribution treated by the shareholder in 20X3? $100,000 dividend and $100,000 tax-free return of basis D.

Terrapin deducts the federal income taxes in computing its current earnings and profits for 20X3. Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Assuming sufficient earnings and profits, the amount of dividend reported by the shareholder is $200,000. Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen will report a gain of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative. Evergreen Corporation distributes land with a fair market value of $50,000 to its sole shareholder. Evergreen will report a loss of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative. Compensation recharacterized by the IRS as a dividend because it was considered “unreasonable” will affect only the income tax liability of the corporation paying the compensation. Unreasonable compensation issues are more likely to arise in audits of privately held corporations rather than publicly traded corporations. Stock dividends are always tax-free to the recipient. The recipient of a tax-free stock dividend will have a zero tax basis in the stock. The recipient of a taxable stock dividend will have a tax basis in the stock equal to the fair market value of the stock received. A stock redemption is always treated as a sale or exchange for tax purposes. Tammy owns 60 percent of the stock of Huron Corporation. Net capital loss carryforward from the prior year tax return D. 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 an installment sale of $250,000. The corporation’s current earnings and profits for 20X3 would be: A. $0 dividend, $50,000 tax-free return of basis, and $150,000 capital gain 48.

Evaluate whether each of these stock redemption transactions qualify for sale or exchange treatment. At the time of the distribution, the shares had a fair market value of $200 per share.

At year end, Getaway is considering different alternatives for redeeming some shares of stock. Getaway has $20,000 of E&P at year end and Bonnie is unrelated to Clyde. The distribution was in exchange for 50% of Rusty’s stock in the company.

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By what amount does EG reduce its total E&P as a result of the redemption under the following E&P assumptions? EG’s total E&P at the time of the distribution was $2,000,000. [LO5] Spartan Corporation redeemed 25% of its shares for $2,000 on July 1 of this year, in a transaction that qualified as an exchange under §302(a). Spartan had total E&P of $8,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized per share by Rusty as a result of the partial liquidation? [LO6] Wolverine Corporation made a distribution of $500,000 to Rich Rod, Inc. The distribution was in exchange for 50% of Rich Rod, Inc.’s stock in the company.Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3. Terrapin Corporation incurs federal income taxes of $250,000 in 20X3. Oakland Corporation reported a net operating loss of $500,000 in 20X3 and elected to carry the loss forward to 20X4. Included in the taxable income computation was a dividends received deduction of $5,000, a net capital loss carryover from 20X2 of $10,000, and gain of $50,000 from an installment sale that took place in 20X1. The corporation’s current earnings and profits for 20X3 would be: A. How is the distribution treated by the shareholder in 20X3? $100,000 dividend and $100,000 tax-free return of basis D.Terrapin deducts the federal income taxes in computing its current earnings and profits for 20X3. Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Assuming sufficient earnings and profits, the amount of dividend reported by the shareholder is $200,000. Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen will report a gain of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative. Evergreen Corporation distributes land with a fair market value of $50,000 to its sole shareholder. Evergreen will report a loss of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative. Compensation recharacterized by the IRS as a dividend because it was considered “unreasonable” will affect only the income tax liability of the corporation paying the compensation. Unreasonable compensation issues are more likely to arise in audits of privately held corporations rather than publicly traded corporations. Stock dividends are always tax-free to the recipient. The recipient of a tax-free stock dividend will have a zero tax basis in the stock. The recipient of a taxable stock dividend will have a tax basis in the stock equal to the fair market value of the stock received. A stock redemption is always treated as a sale or exchange for tax purposes. Tammy owns 60 percent of the stock of Huron Corporation. Net capital loss carryforward from the prior year tax return D. 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 an installment sale of $250,000. The corporation’s current earnings and profits for 20X3 would be: A. $0 dividend, $50,000 tax-free return of basis, and $150,000 capital gain 48. Evaluate whether each of these stock redemption transactions qualify for sale or exchange treatment. At the time of the distribution, the shares had a fair market value of $200 per share. At year end, Getaway is considering different alternatives for redeeming some shares of stock. Getaway has $20,000 of E&P at year end and Bonnie is unrelated to Clyde. The distribution was in exchange for 50% of Rusty’s stock in the company.Sandler would like to retire and sell his shares back to the company. At the beginning of the year PSQ had accumulated earnings and profits of $2,500,000. The company intends to pay pro rata cash dividends of $300 per share to its shareholders on December 1 of this year. Assume the redemption takes place as planned on December 31 and no elections are made by the shareholders.] Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding.

]] dividend, ,000 tax-free return of basis, and 0,000 capital gain 48.

Evaluate whether each of these stock redemption transactions qualify for sale or exchange treatment. At the time of the distribution, the shares had a fair market value of 0 per share.

At year end, Getaway is considering different alternatives for redeeming some shares of stock. Getaway has ,000 of E&P at year end and Bonnie is unrelated to Clyde. The distribution was in exchange for 50% of Rusty’s stock in the company.

dividend, ,000 tax-free return of basis, and 0,000 capital gain 48. Evaluate whether each of these stock redemption transactions qualify for sale or exchange treatment. At the time of the distribution, the shares had a fair market value of 0 per share. At year end, Getaway is considering different alternatives for redeeming some shares of stock. Getaway has ,000 of E&P at year end and Bonnie is unrelated to Clyde. The distribution was in exchange for 50% of Rusty’s stock in the company.Sandler would like to retire and sell his shares back to the company. At the beginning of the year PSQ had accumulated earnings and profits of ,500,000. The company intends to pay pro rata cash dividends of 0 per share to its shareholders on December 1 of this year. Assume the redemption takes place as planned on December 31 and no elections are made by the shareholders.] Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding.

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