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
A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P.
B) $15,000 is taxable as a dividend from accumulated E&P.
C) $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax-free as a return of capital.
D) $5,000 is taxable as a dividend from current E&P, and $10,000 is tax-free as a return of capital.

Question

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
A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P. 
B) $15,000 is taxable as a dividend from accumulated E&P. 
C) $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax-free as a return of capital. 
D) $5,000 is taxable as a dividend from current E&P, and $10,000 is tax-free as a return of capital.

Quizplus · Accepted Answer

The Answer is D

Exit Corporation Has Accumulated E&P of $24,000 at the Beginning