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

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