Question

Distributions from a corporation to a shareholder are only taxed as dividends when current earnings and profits are positive. True or False

A distribution from a corporation to a shareholder cannot be classified as a dividend if the corporation has negative current earnings and profits. True or False

The computation of current earnings and profits can be affected by the receipt of tax exempt income. True or False

M Corporation distributes appreciated property to its shareholder as a dividend. M Corporation will recognize the gain on the distribution of the property and include the gain in taxable income. True or False

A stock redemption cannot be treated as a sale or exchange of the shares if the shareholder whose shares are redeemed is a corporation. True or False

A calendar-year corporation has positive current E&P of $1,500 and a deficit in accumulated E&P of $2,000. The corporation makes a $500 distribution to its sole shareholder on July 1. Which of the following statements is true? Multiple Choice The distribution may be a dividend, depending on whether total (net) earnings and profits at the date of the distribution is positive. The distribution will be a dividend if current earnings and profits are positive and exceed the distribution. The distribution will not be a dividend because total (net) earnings and profits is a negative $500 this year. A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in accumulated earnings and profits.

Which of these items is not an adjustment to taxable income or net loss to compute current E&P? Multiple Choice Disallowed portion of meal expenditures. Executive compensation. Tax exempt life insurance proceeds. Federal income taxes paid or accrued.

Manistee Corporation reported taxable income of $1,200,000 this year and paid federal income taxes of $408,000. Not included in the computation was disallowed entertainment expenses of $25,000, tax-exempt interest of $20,000, and a net capital loss of $50,000 incurred this year. Manistee is an accrual basis taxpayer. The corporation’s current earnings and profits this year would be: Multiple Choice $1,200,000 $1,145,000 $787,000 $737,000

Boulder Company reports current E&P of $500,000 this year and accumulated negative E&P at the beginning of the year of $200,000. Boulder distributed $400,000 to its sole shareholder on December 31 of this year. How much of the distribution is treated as a dividend this year? Multiple Choice $400,000 $200,000 $300,000 $0

Force Corporation is owned equally by Luke and his sister Leia, each of whom own 200 shares in the company. Force redeemed 100 shares of Luke’s stock in the company on December 31 of this year paying Luke $1,000 per share. Luke’s income tax basis in each share is $500. Force has total E&P of $800,000. What are the tax consequences to Luke as a result of the stock redemption? Multiple Choice $50,000 capital gain and a tax basis in each of his remaining shares of $500. $50,000 capital gain and a tax basis in each of his remaining shares of $1,000. $100,000 dividend and a tax basis in each of his remaining shares of $500. $100,000 dividend and a tax basis in each of his remaining shares of $1,000.

Answer 1