Question

Green Corporation (a calendar year taxpayer) had a deficit in accumulated E & P of $250,000 at the beginning of the current year. Its net profit for the period January 1 through July 30 was $300,000, but its E & P for the entire taxable year was only $40,000. If Green made a distribution of $60,000 to its sole shareholder on August 1, how will the shareholder be taxed? Raabe, William A.. South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts (p. 5-31). Cengage Learning. Kindle 版本.

Answer 1

Answer:

Check the following explanation.

Explanation:

Corporation has no accumulated E & P at the time of the distribution. The shareholder has a taxable dividend equal to the current E & P determined at year-end, which was $40,000. The balance of the distribution,$20,000, reduces the shareholder’s basis in the stock, and any excess over basis results in capital gain.