Corporate Taxation: Nonliquidating Distributions

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Business Income,Deductions,and Accounting Methods
Property Acquisition and Cost Recovery
Property Dispositions
Entities Overview
Corporate Operations
Accounting for Income Taxes
Corporate Taxation: Nonliquidating Distributions
Corporate Formation,Neorganization,and Liquidation
Forming and Operating Partnerships
Dispositions of Partnership Interests and Partnership Distributions
S Corporations
State and Local Taxes
The Ustaxation of Multinational Transactions
Transfer Taxes and Wealth Planning

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Question 1

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True/False

The "double taxation" of corporate income refers to the taxation of corporate income at both the entity-level and the shareholder-level.

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Question 2

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True/False

A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes.

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Question 3

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True/False

A corporation's "earnings and profits" account is equal to the company's "retained earnings" account on its balance sheet.

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Question 4

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True/False

A distribution from a corporation to a shareholder will only be treated as a dividend for tax purposes if the distribution is paid out of current or accumulated earnings and profits.

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Question 5

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Green Corporation has current earnings and profits of $100,000 and negative accumulated earnings and profits of ($200,000).A $50,000 distribution from Green to its sole shareholder will not be treated as a dividend because total earnings and profits is a negative $100,000.

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Question 6

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Green Corporation has negative current earnings and profits of ($100,000)and positive accumulated earnings and profits of $250,000.A $50,000 distribution from Green to its sole shareholder will be treated as a dividend because total earnings and profits is a positive $150,000.

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Question 7

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The term "earnings and profits" is well defined in the Internal Revenue Code.

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Question 8

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Only taxable income and deductible expenses are included in the computation of current earnings and profits.

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Question 9

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Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that cannot be deducted on its income tax return but must be carried forward to 20X4.However,Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3.

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Question 10

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Terrapin Corporation incurs federal income taxes of $250,000 in 20X3.Terrapin deducts the federal income taxes in computing its current earnings and profits for 20X3.

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Question 11

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Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder.Evergreen's tax basis in the land is $50,000.Assuming sufficient earnings and profits,the amount of dividend reported by the shareholder is $200,000.

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Question 12

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Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder.Evergreen's tax basis in the land is $50,000.Evergreen will report a gain of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

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Question 13

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Evergreen Corporation distributes land with a fair market value of $50,000 to its sole shareholder.Evergreen's tax basis in the land is $200,000.Evergreen will report a tax loss of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

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Question 14

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Compensation paid to a shareholder and subsequently recharacterized by the IRS as a dividend because it was considered "unreasonable" will affect only the income tax liability of the corporation paying the compensation and the receiving shareholder.

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Question 15

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Unreasonable compensation issues are more likely to arise in audits of privately held corporations rather than publicly traded corporations.

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Question 16

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Stock dividends are always tax-free to the recipient shareholder.

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Question 17

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The recipient of a tax-free stock dividend will have a zero tax basis in the stock.

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Question 18

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The recipient of a taxable stock dividend will have a tax basis in the stock equal to the fair market value of the stock received.

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Question 19

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A stock redemption is always treated as a sale or exchange for tax purposes.

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Question 20

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Tammy owns 60 percent of the stock of Huron Corporation.Unrelated individuals own the remaining 40 percent.For a stock redemption to be treated as an exchange under the "substantially disproportionate" rule,the redemption must reduce Tammy's stock ownership in Huron Corporation below 48 percent.

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