Question

Allocating Distributions. AB Corp has 1,000 shares outstanding and two equal shareholders, Allison and Bella. Bella...

Allocating Distributions.

AB Corp has 1,000 shares outstanding and two equal shareholders, Allison and Bella. Bella has a basis of $5,000 in her 500 shares and Allison has a basis of $2,500 in her 500 shares, both owners purchased their shares 3 years ago. Determine the tax consequences of the following distributions to the shareholders and to AB Corp.

A.AB Corp has accumulated E&P of $5,000 and current E&P of $3,000 and makes a distribution of $10,000 on December 31st of the tax year ($5K to each shareholder).

Homework Answers

Answer #1
Allison
Total Distribution received 5,000
Tax Consequences
Dividend Income $ 4,000 =(5000+3000)/2
Return on Capital $ 1,000 =5000-4000
Revised Basis $ 4,000 =5000-1000
Bella
Total Distribution received 5,000
Tax Consequences
Dividend Income $ 4,000 =(5000+3000)/2
Return on Capital $ 1,000 =5000-4000
Revised Basis $ 1,500 =2500-1000
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