On January 1, Eagle Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. During the year, Eagle incurs a net loss of $420,000 from operations that accrues ratably. On June 30, Eagle distributes $180,000 to Libby, its sole shareholder, who has a basis in her stock of $112,500. How much of the $180,000 is a dividend to Libby?
A) $0
B) $90,000
C) $112,500
D) $180,000
E) None of the above

Question

Quizplus · Accepted Answer

The distribution is a dividend to the extent of Eagle's E&P, which is $300,000 on January 1. The net loss of $420,000 reduces E&P to -$120,000. Therefore, the distribution is a dividend to the extent of $300,000, which is $180,000.

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