Question

At the beginning of the current​ (non-leap) year, Hans owns all of Seaside and Stuff ​Corporation's outstanding stock. His basis in the stock is $70,000. On July​ 1, he sells all his stock to Tom for $110,000. During the​ year, Seaside and Stuff​, a calendar year​ taxpayer, makes two cash​ distributions: $48,000 on March 1 to Hans and $90,000 on September 1 to Tom.

Consider the following independent​ situations:

a.	Current​ E&P of $34,000​; accumulated​ E&P of $32,000.
b.	Current​ E&P of $95,000​; accumulated​ E&P (deficit) of $(54,000).
c.	Current​ E&P (deficit) of $(42,000)​; accumulated​ E&P of $110,000.

		Distribution	Current	Accumulated	Dividend	Return
Situation	Individual	Date	amount	E and P	E and P	income	of capital
a.	Hans	Mar 1
	Tom	Sep 1
	Total

b.	Hans	Mar 1
	Tom	Sep 1
	Total

c.	Hans	Mar 1
	Tom	Sep 1
	Total

What are the amount and character of Jonas​' gain on his sale of stock to John​?

Situation	Total Gain	Character
a
b
c

What is John​'s basis in his Lighthouse Supply stock at the end of the​ year?

Situation	Stock basis at end of year
a
b
c

Answer 1

Situation	Individual	Distribution Date	Current E&P	Accumulated E&P	Cash Distributed	Dividend	Return on Capital
a.	Hans	Mar-01			$48,000	$48,000	$0
	Tom	Sep-01			$90,000	$18,000	$72,000
	Total		$34,000	$32,000	$138,000	$66,000	$72,000
b.	Hans	Mar-01			$48,000	$48,000	$0
	Tom	Sep-01			$90,000	$47,000	$43,000
	Total		$95,000	-$54,000	$138,000	$95,000	$43,000
c.	Hans	Mar-01			$48,000	$48,000	$0
	Tom	Sep-01			$90,000	$20,000	$70,000
	Total		-$42,000	$110,000	$138,000	$68,000	$70,000
Note:
a. Current Year ( positive E&P), Previous Year (Loss E&P) then Dividend distributed from Current year E&P.
b. Current Year ( Loss E&P), Previous Year (Positive E&P ) then Dividend distributed from Previous year E&P
b. Current Year ( Positive E&P), Previous Year (Positive E&P ) then Dividend distributed from Previous as well current   year E&P
Statement Showing Gain earned by John
Situation	Stock basis	Consideration on sale	Gain on Sale (a)	Cash Distributed (b)	Total Gain (a+b)
a.	$70,000	110000	$40,000	48000	$88,000
b.	$70,000	110000	$40,000	48000	$88,000
c.	$70,000	110000	$40,000	48000	$88,000