Question

Pink Corporation is a calendar year taxpayer. Pete owns​ one-third (100​ shares) of Pink stock. His basis in the stock is $ 25000. Cheryl owns​ two-thirds (200​ shares) of Pink stock. Her basis in the stock is $ 40000. On June 10 of the current​ year, Pink distributes $ 40000 to Pete and $ 80000 to Cheryl.

Determine the tax consequences of the cash distributions to Pete and Cheryl in each of the following independent​ situations:

a.	Current​ E&P of $60,000​; accumulated​ E&P of $100,000. Pete Cheryl Distribution: Dividend income: Remaining distribution Return of capital Capital gain (loss) Remaining stock basis
b.	Current​ E&P of $36,000​; accumulated​ E&P of $30,000. Pete Cheryl Distribution: Dividend income: Remaining distribution Return of capital Capital gain (loss) Remaining stock basis

Answer 1

a

Current​ E&P of $60,000​;
accumulated​ E&P of $100,000.
	Pete	Cheryl
Distribution:
Dividend income:	40,000	80,000
Remaining distribution	-	-
Return of capital	-	-
Capital gain (loss)	-	-
Remaining stock basis	25,000	40,000

b

Current​ E&P of $36,000​;
accumulated​ E&P of $30,000.
	Pete	Cheryl
Distribution:
Dividend income:	22,000	44,000
Remaining distribution	18,000	36,000
Return of capital	18,000	36,000
Capital gain (loss)	-	-
Remaining stock basis	7,000	4,000