Question 1

Crossroads Corporation distributes $60,000 to its sole shareholder Harley.Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000.After the distribution, Harley's basis is

Accepted Answer

B) $55,000 of the distribution reduces E&P to $0, and $5,000 is a reduction in the basis of Harley's stock.

Question 2

Which of the following transactions does not have the potential of creating a constructive dividend?

Accepted Answer

All of the options listed can potentially result in a constructive dividend. This occurs when a corporation provides a benefit to a shareholder that can be considered equivalent to a dividend, even if it's not explicitly labeled as such. Compensation to a shareholder-employee, purchase of corporate property by a shareholder, and a shareholder's rental of corporate property can all be scrutinized for being more favorable than what would be expected in an arm's length transaction, thus potentially being classified as constructive dividends.

Question 3

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year.Current E&P is $20,000.During the year, the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock.  The treatment of the $15,000 August 1 distribution would be

Accepted Answer

D)
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Question 4

Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis.Bass distributes a nontaxable preferred stock dividend.When the preferred stock is distributed, it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000.The basis of the preferred stock is

Accepted Answer

B) [$60,000 (FMV)/$240,000 (total FMV)] × $80,000 (basis) = $20,000. Basis is allocated based on relative FMVs.

Question 5

Bat Corporation distributes stock rights with a $20,000 FMV to its common stock shareholders.The $20,000 value of the stock rights at the time of distribution is less than 15% of the value of the underlying stock.Which of the following statements is true?

Accepted Answer

Since the FMV of the stock rights is less than 15% of the value of the underlying stock, shareholders cannot allocate any basis to the rights unless they make a valid election to do so. Therefore, the basis in the rights is zero by default, unless a shareholder elects to allocate basis to the rights. The holding period for the rights also begins on the day the rights are distributed.

Question 6

An individual shareholder owns 3,000 shares of Baxter Corporation common stock with a basis of $10 per share.She receives a nontaxable 5% stock dividend.The basis per share of the common stock after the stock dividend is

Accepted Answer

C) $30,000/[3,000 shares + (0.05 × 3,000 shares)] = $9.52

Question 7

Dixie Corporation distributes $31,000 to its sole shareholder, Sally.At the time of the distribution, Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

Accepted Answer

A) $31,000 - $25,000 = $6,000 distribution in excess of E&P. $10,000 basis - $6,000 excess distribution = $4,000.

Question 8

Wills Corporation, which has accumulated a current E&P totaling $65,000, distributes land to its sole shareholder, an individual.The land has an FMV of $75,000 and an adjusted basis of $55,000.The shareholder assumes a $15,000 liability associated with the land.The shareholder will recognize

Accepted Answer

C) Dividend equals $75,000 FMV - $15,000 liability assumed = $60,000. Basis equals the $75,000 FMV of the property.

Question 9

Identify which of the following statements is true.

Accepted Answer

Option A is true - the holding period for property received by a shareholder in a non-liquidating distribution begins on the day after the distribution. Option B is false because a corporation doesn't recognize gains or losses when making a nonliquidating distribution; it only recognizes gains or losses upon the sale of the property. Option C is false because the corporation's E&P is reduced by the property's adjusted basis, not its FMV.

Question 10

Identify which of the following statements is true.

Accepted Answer

All the statements are true. A) Loans made to shareholders in proportion to their stock ownership can be seen as disguised dividends because they may not be expected to be repaid and are distributed based on ownership interest, similar to dividends. B) Corporate payments for the benefit of a shareholder can be considered a taxable dividend if they are distributions of earnings and profits. C) If a shareholder has the option to receive either corporation stock or money and chooses stock, it is still considered a taxable dividend, as it represents a distribution of the corporation's earnings and profits.

Question 11

Tomika Corporation has current and accumulated earnings and profits of $0.Tomika distributes $10,000 to its sole shareholder, Alana.What are Tomika's earnings and profits after the distribution?

Accepted Answer

A) Distributions cannot create an E&P deficit.

Question 12

One consequence of a property distribution by a corporation to a shareholder is that

Accepted Answer

The answer of One consequence of a property distribution by...

Question 13

Hogg Corporation distributes $30,000 to its sole shareholder, Ima.At the time of the distribution, Hogg's E&P is $14,000 and Ima's basis in her stock is $10,000.Ima's gain from this transaction is a

Accepted Answer

A) $30,000 distribution - $14,000 E&P(dividend) - $10,000 return of capital = $6,000

Question 14

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 15

Wills Corporation, which has accumulated a current E&P totaling $70,000, distributes land to its sole shareholder, an individual.The land has an FMV of $75,000 and an adjusted basis of $60,000.The shareholder assumes a $15,000 liability associated with the land.The transaction will have the following tax consequences.

Accepted Answer

C) The corporation will recognize $15,000 ($75,000 FMV - $60,000 basis) of gain as if it had sold the property immediately preceding the distribution. The shareholder has dividend income equal to the $75,000 FMV minus the $15,000 of liabilities assumed, or $60,000, (but not in excess of the E&P).

Question 16

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 17

A corporation distributes land and the related liability in a nonliquidating distribution to a shareholder.The land (a capital asset)has an adjusted basis of $70,000, an FMV of $100,000 and is subject to a mortgage of $120,000.The corporation must recognize

Accepted Answer

B) The property's FMV is deemed to be at least equal to the liability assumed or acquired (Sec. 311(b)). Therefore a $50,000 capital gain ($120,000 liability - $70,000 basis) is recognized.

Question 18

Oreo Corporation has accumulated E&P of $8,000 at the beginning of the current year.During the year (a nonleap year), the corporation incurs a current E&P deficit of $18,250.The corporation distributes $11,000 on March 20th to Morris, its sole shareholder, who has a $9,000 basis for his stock.If the exact loss cannot be determined as of the date of distribution, the treatment of the distribution will be

Accepted Answer

C) 31 + 28 + 19 = 78; 78/365 × $18,250 = $3,900 reduction in accumulated E&P.
$8,000 - $3,900 loss accrued to distribution date = $4,100 E&P available for distribution. $6,900 ($11,000 - $4,100) balance of the distribution is a return of capital.

Question 19

Identify which of the following statements is false.

Accepted Answer

The distribution of stock rights will be taxable, regardless of the percentage of the value of the stock rights to the underlying stock, if the distribution is taxable under Sec. 301 (relating to distributions of property).

Question 20

A corporation distributes land and the related liability to Meg, its sole shareholder.The land has an FMV of $60,000 and is subject to a liability of $70,000.The corporation has current and accumulated E&P of $80,000.The corporation's adjusted basis for the property is $70,000.What effect does the transaction have on the corporation?

Accepted Answer

The answer of A corporation distributes land and the related...

Quiz 4: Corporate Nonliquidating Distributions

Crossroads Corporation distributes $60,000 to its sole shareholder Harley.Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000.After the distribution, Harley's basis is

Which of the following transactions does not have the potential of creating a constructive dividend?

Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis.Bass distributes a nontaxable preferred stock dividend.When the preferred stock is distributed, it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000.The basis of the preferred stock is

Bat Corporation distributes stock rights with a $20,000 FMV to its common stock shareholders.The $20,000 value of the stock rights at the time of distribution is less than 15% of the value of the underlying stock.Which of the following statements is true?

An individual shareholder owns 3,000 shares of Baxter Corporation common stock with a basis of $10 per share.She receives a nontaxable 5% stock dividend.The basis per share of the common stock after the stock dividend is

Dixie Corporation distributes $31,000 to its sole shareholder, Sally.At the time of the distribution, Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

Wills Corporation, which has accumulated a current E&P totaling $65,000, distributes land to its sole shareholder, an individual.The land has an FMV of $75,000 and an adjusted basis of $55,000.The shareholder assumes a $15,000 liability associated with the land.The shareholder will recognize

Identify which of the following statements is true.

Identify which of the following statements is true.

Tomika Corporation has current and accumulated earnings and profits of $0.Tomika distributes $10,000 to its sole shareholder, Alana.What are Tomika's earnings and profits after the distribution?

One consequence of a property distribution by a corporation to a shareholder is that

Hogg Corporation distributes $30,000 to its sole shareholder, Ima.At the time of the distribution, Hogg's E&P is $14,000 and Ima's basis in her stock is $10,000.Ima's gain from this transaction is a

Identify which of the following statements is true.

Identify which of the following statements is true.

A corporation distributes land and the related liability in a nonliquidating distribution to a shareholder.The land (a capital asset) has an adjusted basis of $70,000, an FMV of $100,000 and is subject to a mortgage of $120,000.The corporation must recognize

Identify which of the following statements is false.