Question

Volunteer Corporation reported taxable income of $435,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Rocky Topp. The land’s fair market value was $87,000 and its tax and E&P basis to Volunteer was $62,000. Rocky assumed a mortgage attached to the land of $17,400. The company had accumulated E&P of $792,000 at the beginning of the year.

A) Compute Volunteer’s total taxable income and federal income tax.

B) Compute Volunteer's current E&P.

C) Compute Volunteer’s accumulated E&P at the beginning of next year.

D) What amount of dividend income does Rocky report as a result of the distribution?

E) What is Rocky’s income tax basis in the land received from Volunteer?

Answer 1

a	Taxable income from operations	$    435,000
	Gain on distribution of land (87000-62000)	$      25,000
	Total taxable income	$    460,000
	Federal income tax @21%	$      96,600
b
	Taxable income from operations	$    460,000
	Less:
	Federal income tax @21%	$     -96,600
	Adjustment for E&P gain on distribution of land	$               -
	Current E&P	$    363,400
c	Current E&P	$    363,400
	Less:
	Fair market value of land distributed	$     -87,000
	Add:
	Mortgage assumed by Rocky	$      17,400
	CE&P after distribution	$    293,800
	Accumulated E&P, beginning	$    792,000
	Accumulated E&P, beginning of next year	$ 1,085,800
d	Rocky reports dividend income of $69,600
	Fair market value of land distributed	$      87,000
	Less: Mortgage assumed	$     -17,400
	Dividend Income	$      69,600
e	Rocky’s income tax basis in the land received from Volunteer Corporation is $87,000