1. Distribution of $15,000 cash to a shareholder when the accumulated adjustment account balance is $5,000...

1. Distribution of $15,000 cash to a shareholder when the accumulated adjustment account balance is $5,000 and the shareholder’s basis in his or her stock is $5,000. The shareholder has made a bona fide loan (the balance is $5,000) to the corporation. There are no Subchapter C earnings and profits.

What are the Capital Gain or Taxable dividends

2. Distribution of $15,000 cash to a shareholder when the accumulated adjustments account balance is $5,000 and the shareholder’s basis in his or her stock is $5,000. There is $5,000 of Subchapter C earnings and profits. No election to apply distributions to earnings and profits first has been made

What are the Capital Gain or Taxable dividends

Expert Solution

1. The Answer to this is the Taxable Dividend is $ 10,000 and Capital gain is $ 5000.

Calculations:- Dividend Distributed is $ 15,000. The Liability assumed is $ 5000 and Stock Basis is $ 5000.

A	Dividend	$15,000.00
B	Stock Basis	$5,000.00
C	Liability Assumed	$5,000.00
A-C	Taxable Dividend	$10,000.00
A-C-B	Capital Gains	$5,000.00

Basis

The taxable dividend is recognised the balance is avaiable in retained earnigs of a corporation. The amount of distribution is reduced by the amount of the liabilities assumed by share holder as per regulation (Secs. 301(b)(1) and (c)).

If the distribution is more than earnings of the corporation, the excess is reduced from the stock basis of the shareholder.

The any excess over and above the stock basis is considered as capital gain.

2. The calculation for the taxable dividends and capital gains shall remaiin the same if chapter C earnings also Exist.

ekkarill92 answered 2 years ago

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