Question

Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows: Joe Jackson 400 Mike Jackson (Joe’s son) 200 Jane Jackson (Joe’s daughter) 200 Vinnie Price (unrelated) 200 Total 1,000 Thriller Corporation has current E&P of $300,000 for this year and accumulated E&P at January 1 of this year of $500,000. During this year, the corporation made the following distributions to its shareholders: 03/31: Paid a dividend of $10 per share to each shareholder ($10,000 in total). 06/30: Redeemed 200 shares of Joe’s stock for $200,000. Joe’s basis in the 200 shares redeemed was $100,000. 09/30: Redeemed 60 shares of Vinnie’s stock for $60,000. His basis in the 60 shares was $36,000. 12/31: Paid a dividend of $10/share to each shareholder ($7,400 in total).

a. Determine the tax status of each distribution made this year. (Hint: First, consider if the redemptions are treated as dividend distributions or exchanges.)

	Treatment dividend distribution on 03/31 Joe dividend distribution on 06/30 Vinnie exchange distribution on 09/30 dividend distribution on 12/31

b. Compute the corporation’s accumulated E&P at January 1 of next year. (Do not round intermediate calculations.)

I need just the answer to part B! Thanks!!

Answer 1

a)

Since CE&P of $300,000 exceeds total dividends distributed during the year, the $10,000 distribution on March 31 is a dividend. Also, since CE&P of $300,000 exceeds total dividends distributed during the year, the $7,400 distribution on December 31 is a dividend

Before the redemption, Joe is deemed to own 800 of the 1,000 (80%) shares of Thriller Corporation (400 directly and 200 each from Mike and Jane). After the redemption Joe is deemed to own 600 of the 800 (75%) remaining shares of Thriller Corporation (200 directly and 200 each from Mike and Jane). Joe fails the stock ownership tests because he still owns more than 50% of the stock. Therefore, the entire $200,000 received by Joe is treated as a dividend.

Before the redemption, Vinnie owns 200 of the remaining 800 (25%) shares of Thriller Corporation stock. After the redemption, Vinnie owns 140 of the 740 (18.9%) remaining shares of Thriller Corporation stock. Vinnie meets both the 50% and 80% tests (18.9% is lower than 50% and is lower than (80% 25%) = 20%). Vinnie treats the redemption as an exchange and reports a capital gain of $24,000 ($60,000 - $36,000).

b.

Compute the corporation’s accumulated E&P at January 1 of next year.Thriller Corporation first reduces its CE&P for the dividends paid during the current year:

formula spreadsheet