Question

# 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: \$

• Capital gain: \$

• Stock basis after the distribution: \$

Solution:

 • Dividend income \$       66,050 Amount distributed as E&P • Return of capital \$       19,815 Distribution of cash in excess of E&P are treated as a return of shareholders` basis in the stock to an extent of stock basis. • Capital gain \$       13,210 Capital Gain=Corporation distribution-Dividend Income-Stock basis [99075-66050-19815] • Stock basis after the distribution \$                - As all the capital has been refunded through distribution, stock basis will become Zero.

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