D purchased all of the stock in SB, Inc., in 2006 for $76,000.On December 31 of the current year, SB, Inc., made a cash distribution of $135,000 to D.Assuming SB, Inc., has current E&P of $15,000 and accumulated E&P of $40,000, the distribution will be treated as

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The distribution will be treated as a taxable dividend to the extent of the current and accumulated E&P, which totals $55,000 ($15,000 current + $40,000 accumulated). The remaining $80,000 ($135,000 - $55,000) is first treated as a nontaxable return of capital up to the amount of D's basis in the stock ($76,000), with the excess $4,000 ($80,000 - $76,000) treated as a capital gain.

D Purchased All of the Stock in SB, Inc