Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Pine Creek Company is owned equally by Bob and his sister Samantha, each of whom own 1,000 shares in the company. On December 31, 20X3, Pine Creek redeemed 200 of Samantha's shares for $5,000,000 in a transaction treated as an exchange by Samantha. Pine Creek has current E&P of $10,000,000 and accumulated E&P of $30,000,000 (computed without regard to the stock redemption). Assuming Pine Creek did not make any dividend distributions during 20X3, by what amount does the company reduce its E&P because of the redemption?

Accepted Answer

$4,000,000
Pine Creek reduces its accumu...

Question 3

Siblings are considered "family" under the stock attribution rules that apply to stock redemptions.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

Accepted Answer

A)   Dividends received deduction.
B)   Installment gain recognized in current year related to a sale in a prior year.
C)   Gain on sale of depreciable assets with higher E&P basis.
D)   Section 179 expense.E) A) and B)
F) None of the above

Question 5

Lansing Company is owned equally by Jennifer, her husband, Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is Jennifer deemed to own?

Accepted Answer

A)   100.
B)   200.
C)   250.
D)   300.E) All of the above
F) A) and B)

Question 6

Catamount Company had current and accumulated E&P of $500,000 at December 31, 20X3. On December 31, the company made a distribution of land to its sole shareholder, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in 20X3 would be:

Accepted Answer

A)   No loss recognized and a reduction in E&P of $250,000.
B)   $50,000 loss recognized and a reduction in E&P of $250,000.
C)   $50,000 loss recognized and a reduction in E&P of $150,000.
D)   No loss recognized and a reduction in E&P of $200,000.E) C) and D)
F) B) and D)

Question 7

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Accepted Answer

A) True 
 B)False

Question 8

Yellowstone Corporation made a distribution of $300,000 to Cheney, Inc. in partial liquidation of the company on December 31, 20X3. Cheney, Inc. owns 50 percent of Yellowstone Corporation (1,000 shares). The other 50 percent is owned by an unrelated corporation. The distribution was in exchange for 50 percent of Cheney's stock in the company (500 shares). At the time of the distribution, the shares had a fair market value of $800 per share. Cheney's income tax basis in the shares was $500 per share. Yellowstone had total E&P of $5,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Cheney as a result of the partial liquidation?

Accepted Answer

$300,000 dividend
A corporation receives...

Question 9

Which of the following stock distributions would be tax-free to the shareholder?

Accepted Answer

A)   A 2-for-1 stock split to all holders of common stock.
B)   A stock distribution where the shareholder could choose between cash and stock.
C)   A stock distribution to all holders of preferred stock.
D)   A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder.E) A) and B)
F) B) and D) A

Question 10

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Accepted Answer

A)   A distribution will only be a dividend if total E&P (current plus accumulated)  is positive at the time of the distribution.
B)   A distribution can never be a dividend if current E&P is negative.
C)   At a minimum, some portion of the distribution will be a dividend if current E&P for the year is positive, even if accumulated E&P is negative.
D)   A distribution will never be a dividend if current E&P for the year is negative, even if accumulated E&P is positive.E) A) and C)
F) A) and B)

Question 11

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 E&P is positive or negative.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following are subtractions from taxable income in computing current E&P?

Accepted Answer

A)   Federal income taxes paid.
B)   Current charitable contributions in excess of 10 percent limitation.
C)   Current-year net capital loss.
D)   All of the choices are subtractions from taxable income in computing current E&P.E) A) and D)
F) A) and B)

Question 13

This year Truckit reported taxable income of $160,000 and received $20,000 of municipal interest. Truckit paid $55,000 in entertainment expenses and $15,000 in fines and penalties. Truckit had $50,000 of accumulated E&P at the beginning of the year. What is Truckit's current E&P?

Accepted Answer

A)   $180,000.
B)   $142,200.
C)   $110,000.
D)   $76,400.E) None of the above
F) C) and D)

Question 14

A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

Accepted Answer

A) True 
 B)False

Question 15

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

Accepted Answer

A)   A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange for tax purposes.
B)   A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend for tax purposes.
C)   A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange if Tammy waives the family attribution rules and files a "triple i" agreement with the IRS.
D)   A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend to the extent that the redemption exceeds Tammy's tax basis in the redeemed shares.E) C) and D)
F) All of the above C

Question 16

Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

Accepted Answer

A)   The distribution is a dividend to the extent of the corporation's E&P, then a return of capital, and finally gain from sale of stock.
B)   The distribution is a return of capital, then a dividend to the extent of the corporation's E&P, and finally gain from sale of stock.
C)   The distribution is a return of capital, then gain from sale of stock, and finally a dividend to the extent of the corporation's E&P.
D)   The shareholder can elect to treat the distribution as either a dividend to the extent of the corporation's E&P or a return of capital, followed by gain from sale of stock.E) B) and C)
F) A) and D)

Question 17

Oakland Corporation reported a net operating loss of $500,000 in 20X3 and elected to carry the loss forward to 20X4. Not included in the computation was a disallowed meals and entertainment expense of $20,000, tax-exempt income of $10,000, and deferred gain on a current-year transaction treated as an installment sale of $250,000. The corporation's current E&P for 20X3 would be:

Accepted Answer

A)   ($500,000) .
B)   ($720,000) .
C)   ($510,000) .
D)   ($260,000) .E) C) and D)
F) A) and B)

Question 18

Beaver Company reports current E&P of $100,000 in 20X3 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in 20X3?

Accepted Answer

A)   $400,000 dividend.
B)   $100,000 dividend, $200,000 tax-free return of basis, and $100,000 capital gain.
C)   $200,000 dividend and $200,000 tax-free return of basis.
D)   $300,000 dividend and $100,000 tax-free return of basis.E) A) and C)
F) A) and B)

Question 19

Which of the following statements best describes current E&P?

Accepted Answer

A)   Current E&P is another name for a corporation's retained earnings on its balance sheet.
B)   Current E&P is a precisely defined tax term in the Internal Revenue Code and represents a corporation's economic income.
C)   Current E&P is an ill-defined tax concept in the Internal Revenue Code and represents a corporation's current-year economic income.
D)   Current E&P is an ill-defined tax concept.E) All of the above
F) A) and D) C

Question 20

Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Accepted Answer

A)   100.
B)   200.
C)   300.
D)   400.E) B) and C)
F) None of the above

Exam 7: Corporate Taxation: Nonliquidating Distributions

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

Correct Answer
verified

Correct Answer
verified
$4,000,000
Pine Creek reduces its accumu...
View Answer

Siblings are considered "family" under the stock attribution rules that apply to stock redemptions.

Correct Answer
verified

Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Correct Answer
verified

Correct Answer
verified
$300,000 dividend
A corporation receives...
View Answer

Which of the following stock distributions would be tax-free to the shareholder?

Correct Answer
verified
A

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Correct Answer
verified

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 E&P is positive or negative.

Correct Answer
verified

Which of the following are subtractions from taxable income in computing current E&P?

Correct Answer
verified

This year Truckit reported taxable income of $160,000 and received $20,000 of municipal interest. Truckit paid $55,000 in entertainment expenses and $15,000 in fines and penalties. Truckit had $50,000 of accumulated E&P at the beginning of the year. What is Truckit's current E&P?

Correct Answer
verified

A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

Correct Answer
verified

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

Correct Answer
verified
C

Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Which of the following statements best describes current E&P?

Correct Answer
verified
C

Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Correct Answer
verified

Exam 7: Corporate Taxation: Nonliquidating Distributions

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

Correct AnswerverifiedShow Answer

Correct Answerverified$4,000,000Pine Creek reduces its accumu...View AnswerShow Answer

Siblings are considered "family" under the stock attribution rules that apply to stock redemptions.

Correct AnswerverifiedShow Answer

Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Correct AnswerverifiedShow Answer

Correct Answerverified$300,000 dividendA corporation receives...View AnswerShow Answer

Which of the following stock distributions would be tax-free to the shareholder?

Correct AnswerverifiedA

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Correct AnswerverifiedShow Answer

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 E&P is positive or negative.

Correct AnswerverifiedShow Answer

Which of the following are subtractions from taxable income in computing current E&P?

Correct AnswerverifiedShow Answer

This year Truckit reported taxable income of $160,000 and received $20,000 of municipal interest. Truckit paid $55,000 in entertainment expenses and $15,000 in fines and penalties. Truckit had $50,000 of accumulated E&P at the beginning of the year. What is Truckit's current E&P?

Correct AnswerverifiedShow Answer

A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

Correct AnswerverifiedShow Answer

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

Correct AnswerverifiedC

Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements best describes current E&P?

Correct AnswerverifiedC

Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
$4,000,000
Pine Creek reduces its accumu...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
$300,000 dividend
A corporation receives...
View Answer

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified