Elvis owns all of the stock of White Corporation. The accumulated earnings and profits of White Corporation at the beginning of the year are a deficit of $20,000. The current earnings and profits are $30,000. Elvis' basis for his stock is $250,000. He receives a distribution of $300,000 on the last day of the tax year. How much dividend income and/or capital gain should Elvis report?
A)$0.
B)Dividend income of $30,000 and capital gain of $20,000.
C)Dividend income of $30,000 and capital gain of $0.
D)Dividend income of $10,000 and capital gain of $20,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The distribution is first applied against current earnings and profits ($30,000), resulting in dividend income. The remaining $270,000 reduces Elvis' stock basis ($250,000), resulting in a capital gain of $20,000.

Elvis Owns All of the Stock of White Corporation