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Exam 19: Corporations: Distributions Not in Complete Liquidation

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Question 21

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Navy Corporation makes a property distribution to its sole shareholder,Troy.The property distributed is a car (fair market value of $10,000; basis of $15,000) that is subject to a $2,000 liability which Troy assumes.Navy makes no other distributions during the current year.Navy has no accumulated E & P and $15,000 of current E & P from other sources during the year.What is Navy's E & P after taking into account the distribution of the car?

A) $2,000.
B) $3,000.
C) $5,000.
D) $7,000.
E) None of the above.

F) A) and E)
G) B) and D)

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Question 22

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When is a redemption to pay death taxes under § 303 most advantageous?

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The principal advantage of a § 303 redem...

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Question 23

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Ember Corporation has 500 shares of stock outstanding: Zoe owns 170 shares,Leticia owns 95 shares,and Samuel owns 55 shares.Sage Partnership owns the other 180 shares in Ember Corporation.Zoe,Leticia,and Samuel,all unrelated,are equal partners of the Sage Partnership.In applying the stock attribution rules under § 318:

Orange Corporation has a deficit in accumulated E & P of $600,000 and has current E & P of $450,000.On July 1,Orange distributes $500,000 to its sole shareholder,Morris,who has a basis in his stock of $105,000.As a result of the distribution,Morris has:

Canary Corporation has 1,000 shares of stock outstanding.It redeems in a qualifying stock redemption 350 shares for $400,000 at a time when it has paid-in capital of $100,000 and E & P of $1 million.What would be the charge to Canary's E & P as a result of the redemption?

Puffin Corporation's 2,000 shares outstanding are owned as follows: Paul,800 shares; Sandra (Paul's sister),800 shares; and Greta (Paul's granddaughter),400 shares.During the current year,Puffin (E & P of $1 million)redeemed 600 shares of Paul's stock for $100,000.If Paul had acquired the 600 shares five years ago for $30,000,he will have a long-term capital gain of $70,000 from the redemption.

Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.

Gander,a calendar year corporation,has a deficit in current E & P of $100,000 and a $290,000 positive balance in accumulated E & P.If Gander determines that a $500,000 distribution to its shareholders is appropriate at some point during the year,what is the maximum amount of the distribution that could potentially be treated as a dividend?

During the year,Blue Corporation distributes land to its sole shareholder.If the fair market value of the land is less than its adjusted basis,Blue will recognize a loss on the distribution.

Finch Corporation distributes property (basis of $140,000,fair market value of $200,000) to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $90,000,which the shareholder assumes.The basis of the property to the shareholder is:

Lupe and Rodrigo,father and son,each own 50% of the stock outstanding of Heron Corporation (E & P of $400,000) .During the current year,Heron redeems all of Lupe's shares for $250,000.The transaction cannot qualify as a complete termination redemption if:

Duck Corporation is a calendar year taxpayer formed in 2005.Duck's E & P for each of the past 5 years is listed below. Duck Corporation made the following distributions in the previous 5 years. 2009 Land (basis of $700,000,fair market value of $800,000) 2006 $200,000 cash Duck's accumulated E & P as of January 1,2011 is:

Samantha owns stock in Pigeon Corporation (basis of $80,000) as an investment.Pigeon distributes property (fair market value of $300,000; basis of $150,000) to her during the year.Pigeon has current E & P of $20,000 and accumulated E & P of $80,000 and makes no other distributions during the year.What is Samantha's capital gain on the distribution?

Robin Corporation distributes furniture (basis of $40,000; fair market value of $50,000) as a property dividend to its shareholders.The furniture is subject to a liability of $55,000.Robin Corporation recognizes gain of:

Puce Corporation,an accrual basis taxpayer,has struggled to survive since its formation,six years ago.As a result,it has a deficit in accumulated E & P at the beginning of the year of $340,000.This year,however,Puce earned a significant profit; taxable income was $240,000.Consequently,Puce made two cash distributions to Martha,its sole shareholder: $150,000 on July 1 and $200,000 December 31.The following information might be relevant to determining the tax treatment of the distributions.

In a not essentially equivalent redemption [§ 302(b)(1)],the meaningful reduction test is an objective safe harbor rule that taxpayers can rely upon for sale or exchange treatment.

Which of the following statements regarding constructive dividends is not correct?

Regardless of any deficit in current E & P,distributions during the year are taxed as dividends to the extent of accumulated E & P.

If stock rights are taxable,the recipient has income to the extent of the fair market value of the rights.

Platinum Corporation,a calendar year taxpayer,has taxable income of $500,000.Among its transactions for the year are the following: Disregarding any provision for Federal income taxes,Platinum Corporation's current E & P is: