On January 1, Gull Corporation (a calendar year taxpayer) has accumulated E & P of $200,000.During the year, Gull incurs a net loss of $280,000 from operations that accrues ratably.On June 30, Gull distributes $120,000 to Sharon, its sole shareholder, who has a basis in her stock of $75,000.How much of the $120,000 is a dividend to Sharon?
A)$0.
B)$60,000.
C)$75,000.
D)$120,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Since Gull Corporation had no other distributions during the year, the entire $120,000 distribution to Sharon is considered to be out of the accumulated E&P of $200,000. Therefore, $80,000 of the distribution reduces the E&P balance to zero, and the remaining $40,000 is treated as a return of Sharon's basis in the stock. Since the distribution does not exceed Sharon's basis in her stock, none of the distribution will be treated as a dividend to her. Thus, the answer is B.

On January 1, Gull Corporation (A Calendar Year Taxpayer) Has