Pheasant Corporation, a calendar year taxpayer, has $400,000 of current E & P and a deficit in accumulated E & P of $180,000. If Pheasant pays a $600,000 distribution to its shareholders on July 1, how much dividend income do the shareholders report?
A) $0
B) $20,000
C) $220,000
D) $400,000
E) None of the above

Question

Quizplus · Accepted Answer

The dividend income reported by shareholders is limited to the current E & P of $400,000, as the distribution cannot exceed the current E & P when there is a deficit in accumulated E & P.

Pheasant Corporation, a Calendar Year Taxpayer, Has $400,000 of Current