Question 1

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 known as the "dividend presumption rule."

Question 2

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 generally taxable as income to the recipient, and the income is equal to the fair market value of the rights at the time they are received.

Question 3

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 income...

Question 4

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, Blue Corporation will not recognize a loss on the distribution. Instead, the shareholder's basis in the land will be the fair market value at the time of distribution.

Question 5

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 are not eligible for the reduced tax rate available to individuals in certain years. This is because the reduced tax rate applies only to qualified dividends, which are paid to shareholders who hold a long position in the stock for a certain period of time.

Question 6

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 7

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 8

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, which falls under the definition of investment interest expense for the purposes of the investment interest expense limitation. This means that taxpayers may be subject to limitations on the amount of investment interest expense they can deduct on their tax returns.

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

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 dividends, but rather they are deemed or implied dividends that arise when a corporation provides a benefit to its shareholders without formally declaring a dividend. Therefore, they do not need to meet the legal requirements for a dividend under applicable state law.

Question 11

If there is sufficient E & P,a pro rata distribution of nonconvertible preferred stock to common shareholders is taxable.

Accepted Answer

The answer of If there is sufficient E & P,a...

Question 12

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

Accepted Answer

The rules for determining the taxability of stock dividends also apply to distributions of stock rights. Therefore, stock rights are generally not taxable when they are received. However, if the stock rights are exercised, the resulting stock may be subject to taxation.

Question 13

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 14

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 15

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 16

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

This statement is true. When current E & P has a deficit and accumulated E & P is positive, they are netted to determine if there is a positive balance available for distribution as a dividend. If there is a positive balance, it can be distributed as a dividend to the extent of the balance.

Question 17

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 (or...

Question 18

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 for tax purposes.

Question 19

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 20

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

Accepted Answer

Certain conditions must be met for foreign dividends to qualify for the 15% rate, such as the foreign corporation being incorporated in a country with a tax treaty with the US and the dividend being held for a minimum period of time. However, if these conditions are met, the dividends can be considered qualified dividends for tax purposes.

Quiz 5: Corporations: Earnings Profits and Dividend Distributions