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TAX 9866 Lecture Notes - Lecture 27: Double Taxation, Capital Gain

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scarletsnail973
20 Dec 2019
School
Baruch College
Department
Tax
Course
TAX 9866
Professor
Getty

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Document Summary

If there are insufficient e&p for the current year to cover all cash distributions, then e&p must be allocated to the distributions to determine the dividend status under the following rules: Distribution amount x total current e&p/total distributions. Next, accumulated e&p is allocated on a fifo basis chronologically to the. Where there is a current year loss but prior year accumulated e&p, you must distributions. determine the amount of available as of the distribution date. Current year loss is generally prorated to the date of the distribution unless it can clearly be earmarked to a specific period. 351 carryover basis of stock 100k. corp carryover basis 100k. now if corp turned around and distributed that property to me or some other sh and we didn"t have special rules, possibly avoid double taxation. When corp distributes appreciated prop. amt of distrib is fmv of prop.

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Related Questions

Liquidations:
Determine whether the following statements are True or False: TRUE FALSE

1. A liquidating cash distribution may reduce the recipient partner's basis below zero.
2. A liquidating distribution of appreciated inventory reduces the recipient partner's basis in his partnership interest to below zero.

3. If a partner has a basis of $15,000 in a partnership, and receives a non liquidating distribution of land with an adjusted basis of $16,000, but a FMV of $18,000, there will be a gain of $1,000.
4. A non liquidating distribution of only cash, may result in a deductible loss.
5. A liquidating distribution of only land, may result in a deductible loss.
6. In a nonliquidating distribution of property, the partner's basis must equal zero.
7. In a nonliquidating distribution, if there is sufficient basis to the partner, the property received will have the same basis to the partner as the property had to the partnership.
8. A partner recognizes a gain on a distribution only to the extent that cash received exceeds the partner's basis in the partnership.

9. Loss is recognized by the partner who receives a nonliquidating distribution of cash, when the amount of cash is less than his basis in the partnership interest before the distribution.
10. If a partner has a basis of $15,000 in a partnership, and receives a nonliquidating distribution of land with an adjusted basis of $16,000, but a FMV of $18,000, the land will have a basis of $15,000.

22) Boxer Corporation buysequipment in January of the current year with a 7-year class lifefor $15,000. The corporation expensed the $15,000 under Sec. 179.The deduction in the year of purchase for E&P purposes due tothe acquisition and expensing of the equipment is
A. $14,000
B. $15,000
C. $1,500
D. $3,000
23) Maxwell Corporation reportsthe following results:
Year CurrentE&P Distributions
2005 $6,000 $4,000
2006 5,000 1,000
2007 1,000 -0-

Maxwell's dividends-received deduction is
A. $5,000
B. $12,000
C. $0
D. $7,000
24) Identify which of thefollowing statements is false.
A. At formation, acorporation's E&P depends on the amount of capital contributedby the shareholders.
B. Adjustments totaxable income when computing E&P do not include tax exemptinterest.
C. For E&Pdividend distribution purposes, property as defined in Sec. 317(a)includes money.
D. The function ofE&P is to provide a measure of a corporation's economic abilityto pay dividends.
25) Exit Corporation hasaccumulated E&P of $24,000 at the beginning of the current taxyear. Current E&P is $20,000. During the year the corporationmakes the following distributions to its sole shareholder who has a$22,000 basis for her stock.
Date AmountDistributed
April 1 $20,000
June 1 20,000
August 1 15,000
November 1 5,000

The treatment of the $15,000 August 1 distribution would be
A. $4,000 is taxableas a dividend from accumulated E&P, and $11,000 is tax-free asa return of capital
B. $5,000 is taxableas a dividend from current E&P and $10,000 is tax-free as areturn of capital
C. $15,000 is taxableas a dividend; $5,000 from current E&P and the balance fromaccumulated E&P
D. $15,000 is taxableas a dividend from accumulated E&P
26) Current E&P does notinclude
A. tax-exemptinterest income
B. life insuranceproceeds where the corporation is the beneficiary
C. federal income taxrefunds from prior years
D. All of the theseare included
27) Identify which of thefollowing statements is true.
A. Section 179property must be expensed ratably over a 5-year period whencomputing E&P.
B. Losses on propertysales to related parties are not deductible when computingE&P.
C. Distributions madeout of accumulated E&P are allocated ratably between multipledistributions made during the tax year.
D. All arefalse.
28) Crossroads Corporationdistributes $60,000 to its sole shareholder Harley. Crossroads hasearnings and profits of $55,000 and Harley's basis in her stock is$20,000. After the distribution, Harley's basis is
A. $20,000
B. $60,000
C. $5,000
D. $15,000
29) Hogg Corporation distributes$30,000 to its sole shareholder, Ima. At the time of thedistribution, Hoggs' E&P is $14,000 and Ima's basis in herstock is $10,000. Ima's gain from this transaction is
A. $20,000 capitalgain
B. $30,000 capitalgain
C. $6,000 capitalgain
D. $14,000 capitalgain
30) One consequence of aproperty distribution by a corporation to a shareholder is
A. the amount of thedistribution is increased by any liability assumed by theshareholder
B. any liabilitiesassumed by the shareholder do not reduce the shareholder'sbasis
C. the shareholder'sbasis in the distributed property is the same as the distributingcorporation's basis
D. the holding periodof the distributed property includes the holding period of thedistributing corporation
31) Identify which of thefollowing statements is true.
A. The distributingcorporation's E&P must be reduced by the FMV of nontaxablestock rights distributed to shareholders.
B. A stock redemptioncan be used to withdraw some assets from a corporation prior to asale of the business.
C. A shareholder canredeem part of his stock and recognize a capital gain if thecorporation has only one shareholder.
D. All arefalse.
32) Which of the following isnot a reason for a stock redemption?
A. desire byremaining shareholders to retain control
B. No outside marketexists for the stock.
C. Redemption ofshares is a good corporate investment.
D. desire byshareholders to reduce the corporate tax liability
33) Elijah owns 20% of ParkCorporation's single class of stock. Elijah's basis in the stock is$8,000. Park's E&P is $28,000. If Park redeems all of Elijah'sstock for $48,000, Elijah must report dividend income of
A. $0
B. $48,000
C. $40,000
D. $28,000

On February 10, 2018, Ace Corporation, a new calendar yearcorporation, elected S corporation status and all shareholdersconsented to the election. There was no change in its shareholdersduring the current year. Ace met all eligibility requirements foran S corporation during the preelection portion of the year. Whatis the earliest date on which Ace can be recognized as an Scorporation?

February 10, 2018

January 1, 2019

February 10, 2019

January 1, 2018

In March of 2017 Frederick acquired an passenger automobile for$45,000 and used the automobile 85% for business. Themaximum depreciation deduction for 2017 is:

$3,160

$11,160

$8,928

$9,486

In August of 2017, Joseph acquires andplaces into services business equipment costing $300,000. Theequipment is classified as 5-year recovery property. No otheracquisitions are made during the year. Joseph elects to expense themaximum amount under Sec. 179. Joseph’s total deductions for theyear are:

$60,000

$500,000

$100,000

$300,000

For the current tax year, VBN, an S Corporation distributes$100,000 to its sole shareholder, Raymond. His basis in the stockwas $140,000 before the distribution. VBN had once been a regular CCorporation and had remaining accumulated earnings and profits(E&P) from those years of $70,000. However, VBN has no balancein its accumulated adjustment account. How should the distributionof $100,000 be handled?

$100,000 as a taxable distribution

$70,000 as a taxable dividend, and $30,000 has a non taxablereturn of capital

$50,000 as a taxable dividend, and $100,000 as a non taxablereturn of capital

$70,000 as a taxable dividend; and $30,000 as a capital gain

Stahl, an individual who owns 100% of Talon, an S corporation,had a basis of $50,000 at the first of the year. During the yearTalon reported the following: Ordinary Loss of $10,000; Municipalinterest income of $8,000, Long term capital gain of $4,000; andLong term capital loss of $9,000. What was Stahl's basis in Talonat year end?

$56,000

$65,000

$53,000

$43,000