Question

11. On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of...

11. On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, and Tom’s basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?

Homework Answers

Answer #1

Step 1

The question is based on the concept of finding effect of dividend distribution on tax basis on the promoters. The distribution will have dual impact ; on dividend and stock basis.

Step 2

As per the given data in question, Anne and Tom is promoters of Tulip corporation.

Dividend income for both shareholders = [Accumulated E&P + current E&P] ÷2= ($300,000+$90,000) ÷2=$195,000.

Excess Distribution of $300,000-$90,000= $210,000 reduces the stock basis in Tulip treated as capital gain.

For Anne = [($210,000 excess of E&P ÷2) –$65,000 basis]= stock basis to zero and capital gain of $40,000

For Tom =Stock basis to $15,000 = [$120,000 basis – ($210,000 excess of E&P ÷2)]

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000....
On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, and Tom’s basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?
At the start of the current year, Blue Corporation (a calendar year taxpayer) has accumulated E...
At the start of the current year, Blue Corporation (a calendar year taxpayer) has accumulated E & P of $100,000. Blue’s current E & P is $60,000, and at the end of the year, it distributes $200,000 ($100,000 each) to its equal shareholders, Pam and Jon. Pam’s stock basis is $11,000; Jon’s stock basis is $26,000. How is the distribution treated for tax purposes?
At the beginning of the year, Myrna Corporation (a calendar year taxpayer) has E & P...
At the beginning of the year, Myrna Corporation (a calendar year taxpayer) has E & P of $66,050. The corporation generates no additional E & P during the year. On December 31, the corporation distributes $99,075 to its sole shareholder, Abby, whose stock basis is $19,815. How is the distribution treated for tax purposes? If an amount is zero, enter "0". As a result the distribution Abby has the following: • Dividend income: $ • Return of capital: $ •...
On January 1, 2019 Gold Corporation (a calendar year taxpayer) has E&P of $50,000 and generates...
On January 1, 2019 Gold Corporation (a calendar year taxpayer) has E&P of $50,000 and generates no additional E&P during the 2019 year. On 12/30/19, the corporation distributes $95,000 to its sole shareholder, Walt (who has basis in Gold stock of $30,000). Determine the effect of this distribution on (a) Walt’s adjusted gross income; (b) on Walt’s basis in the GoldCorp stock; and (c) explain what happens to any balance from the distribution (i.e. how does Walt treat such a...
At the beginning of the current year, Inga Corporation (a calendar year taxpayer) has accumulated E...
At the beginning of the current year, Inga Corporation (a calendar year taxpayer) has accumulated E & P of $30,000. During the year, Inga incurs a $12,000 loss from operations that accrues ratably. On April 1, Inga distributes $20,000 in cash to Galina, its sole shareholder. How is Galina taxed on the distribution? If an amount is zero, enter "0". Of the 20,000 distribution, $___ is taxed as a dividend and $___ represents a return on capital.
Sparrow Corporation is a calendar year taxpayer. At the beginning of the current year, Sparrow has...
Sparrow Corporation is a calendar year taxpayer. At the beginning of the current year, Sparrow has accumulated E & P of $184,400. The corporation incurs a deficit in current E & P of $258,160 that accrues ratably throughout the year. On June 30, Sparrow distributes $110,640 to its sole shareholder, Libby. If Libby's stock has a basis of $18,440, how is she taxed on the distribution? Taxable dividend income in the amount of $ Return of capital in the amount...
As of January 1, 2019, Mercedes Corporation (a calendar year taxpayer) had a positive balance in...
As of January 1, 2019, Mercedes Corporation (a calendar year taxpayer) had a positive balance in Accumulated Earnings and Profits (E&P) of $100,000. For the tax year of 2019, Mercedes Corporation’s Current Earnings And Profits (E&P) was a “Deficit” (negative) ($60,000). On June 30, 2019, Mercedes Corporation distributed $120,000 to its sole shareholder. The amount of the distribution that is a Taxable Dividend income to the shareholder is: $40,000 $100,000 $30,000 $70,000
On January 1 of the current year, Rhondell Corporation has accumulated E & P of $186,000....
On January 1 of the current year, Rhondell Corporation has accumulated E & P of $186,000. Current E & P for the year is $558,000, earned evenly throughout the year. Elizabeth and Jonathan are sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth sells all of her stock to Marshall. Rhondell makes two distributions to shareholders during the year: a total of $297,600 ($148,800 to Elizabeth and $148,800 to Jonathan) on April 30 and...
On January 1 of the current year, Rhondell Corporation has accumulated E & P of $112,000....
On January 1 of the current year, Rhondell Corporation has accumulated E & P of $112,000. Current E & P for the year is $336,000, earned evenly throughout the year. Elizabeth and Jonathan are sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth sells all of her stock to Marshall. Rhondell makes two distributions to shareholders during the year: a total of $179,200 ($89,600 to Elizabeth and $89,600 to Jonathan) on April 30 and...
On September 30, Marsh Corporation, a calendar year taxpayer, sold a parcel of land (basis of...
On September 30, Marsh Corporation, a calendar year taxpayer, sold a parcel of land (basis of $320,000) for an $800,000 note. The note is payable in four installments, with the first payment due next year. Because Marsh did not elect out of the installment method, none of the $480,000 gain is taxed this year. Marsh Corporation had a $150,000 deficit in accumulated E & P at the beginning of the year. Before considering the effect of the land sale, Marsh...