Maria and Christopher each own 50% of Cockatoo Corporation, a calendar year taxpayer. Distributions from Cockatoo are $750,000 to Maria on April 1 and $250,000 to Christopher on May 1. Cockatoo's current E & P is
$300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to
Christopher's distribution?
A) $0
B) $75,000
C) $150,000
D) $300,000
E) None of these.

Question

Quizplus · Accepted Answer

Christopher's distribution is covered first by the current E&P of $300,000, leaving $450,000 of Maria's distribution to be covered by the accumulated E&P. Since Christopher received a $250,000 distribution, the remaining $200,000 of his distribution is covered by the accumulated E&P, leaving $400,000 of accumulated E&P. However, since the question asks specifically about Christopher's allocation from the accumulated E&P, it is $75,000, which is 25% of his total distribution ($250,000), reflecting the portion of his distribution that exceeds the current E&P.

Maria and Christopher Each Own 50% of Cockatoo Corporation, a Calendar