Question

Can you answer each of these questions individually?

6.Orange Corporation distributes $200,000 in cash to each of its three shareholders: Sandy, Bryon, and Fuchsia Corporation. What factors must be considered when determining how the distribution is treated for tax purposes by shareholders?

7.Assume the same facts as in Question 6, except the property is distributed. What factors must be considered when determining how the distribution is treated for tax purposes by Orange Corporation?

Answer 1

6. The factors that should be considered when determining how the distribution should be treated for tax purposes by shareholders are listed below:

- The E&P of Orange Corp

- Whether the derivation of E&P is accurate

- The allocation of E&P to each shareholder's distribtution

- The nature of the distribution i.e. partial or complete liquidation

7. The facts to be considered for distribution of property are listed below:

- The fair market value of the property

- The gain to be realized on distribution of property

- Whether the property has increased or decreased in value.

- The liabilities attached to the property, if any.