Question 1

Under certain circumstances, a distribution can generate (or add to) a deficit in E & P.

Accepted Answer

The answer of Under certain circumstances, a distribution can generate...

Question 2

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.

Accepted Answer

The answer of Property distributed by a corporation as a...

Question 3

A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution.

Accepted Answer

The answer of A corporate shareholder that receives a constructive...

Question 4

For tax purposes, all stock redemptions are treated as dividend distributions.

Accepted Answer

Stock redemptions can be treated as capital gains or losses depending on the circumstances, and are not always considered dividend distributions for tax purposes.

Question 5

When current E & P is positive and accumulated E & P has a deficit balance, the two accounts are netted for dividend determination purposes.

Accepted Answer

The answer of When current E & P is positive...

Question 6

The rules used to determine the taxability of stock dividends also apply to distributions of stock rights.

Accepted Answer

Stock rights and stock dividends are both types of corporate distributions, and they are subject to the same rules for determining their taxability. These rules depend on a variety of factors, including the type of stock, the length of time it was held, and the taxpayer's tax bracket. In general, stock dividends and rights are considered taxable income, although there are some exceptions and exclusions available under certain circumstances.

Question 7

Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise.

Accepted Answer

This is the general rule under tax law. Corporate distributions are assumed to be paid out of earnings and profits (E&P) and are treated as dividends for tax purposes, but the parties may be able to show that the distribution was actually a return of capital or some other non-dividend payment.

Question 8

During the year, Blue Corporation distributes land to its sole shareholder.If the fair market value of the land is less than its adjusted basis, Blue will recognize a loss on the distribution.

Accepted Answer

If the fair market value of the distributed land is less than its adjusted basis, there is no loss recognized by the corporation on the distribution. The shareholder would instead reduce their basis in the distributed land.

Question 9

If a distribution of stock rights is taxable and their fair market value is less than 15 percent of the value of the old stock, then either a zero basis or a portion of the old stock basis may be assigned to the rights, at the shareholder's option.

Accepted Answer

The answer of If a distribution of stock rights is...

Question 10

Dividends taxed as ordinary income are considered investment income for purposes of the investment interest expense limitation.

Accepted Answer

Dividends taxed as ordinary income are considered investment income and are subject to the investment interest expense limitation, meaning that the amount of investment interest expense a taxpayer can deduct in any given year is limited to the amount of their net investment income for that year.

Question 11

Regardless of any deficit in current E & P, distributions during the year are taxed as dividends to the extent of accumulated E & P.

Accepted Answer

The answer of Regardless of any deficit in current E...

Question 12

Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years.

Accepted Answer

Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate because the holding period requirement for qualified dividends is not met for the short position.

Question 13

Certain dividends from foreign corporations can be qualified dividends for purposes of the 15% rate available to individuals.

Accepted Answer

Certain dividends from foreign corporations that meet certain requirements can be considered qualified dividends for the purpose of the lower 15% tax rate for individuals.

Question 14

In certain circumstances, the amount of dividend income recognized by a shareholder from a property distribution is not reduced by the amount of liability assumed by a shareholder.

Accepted Answer

The answer of In certain circumstances, the amount of dividend...

Question 15

If a stock dividend is taxable, the shareholder's basis in the newly received shares is equal to the fair market value of the shares received in the distribution.

Accepted Answer

When a stock dividend is taxable, the shareholder's basis in the newly received shares is equal to the fair market value of the shares received in the distribution. This means that if a shareholder receives, for example, 10 new shares as a dividend, and the fair market value of each share is $50, the shareholder's basis in the new shares would be $500. This is important to determine for tax purposes when the shareholder eventually sells the new shares, as the gain or loss will be calculated based on this basis.

Question 16

A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property.

Accepted Answer

The answer of A corporation that distributes a property dividend...

Question 17

If stock rights are taxable, the recipient has income to the extent of the fair market value of the rights.

Accepted Answer

According to the IRS, stock rights are considered taxable income and the recipient must report the fair market value of the rights as income on their tax return.

Question 18

Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.

Accepted Answer

Constructive dividends are not actual distributions of funds to shareholders, but rather they are considered to be certain economic benefits or transactions that have been treated as dividends by the IRS. Therefore, they do not need to meet the legal requirements for a dividend under state law.

Question 19

Constructive dividends have no effect on a distributing corporation's E & P.

Accepted Answer

Constructive dividends do affect a corporation's Earnings and Profits (E&P) because they are treated as if the corporation had declared and paid a cash dividend, thus reducing the corporation's E&P.

Question 20

When current E & P has a deficit and accumulated E & P is positive, the two accounts are netted at the date of the distribution. If a positive balance results, the distribution is a dividend to the extent of the balance.

Accepted Answer

When current E & P has a deficit and accumulated E & P is positive, they are netted at the date of the distribution. If the result is a positive balance, it is considered a dividend to the extent of the balance.

Quiz 19: Corporations: Distributions Not in Complete Liquidation