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Illini Corporation reported taxable income of $500,000 from operations for this year. During the year, the...

Illini Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of an automobile to its sole shareholder, Carly Urbana. The auto’s fair market value was $30,000, and its tax basis to Illini was $0. The auto’s E&P basis was $15,000. Illini had accumulated E&P of $1,500,000.

a. Compute Illini’s taxable income and federal income tax.

Taxable Income= ?

Federal Income tax= ?

b. Compute Illini's current E&P.

Current E&P= ?

c. What is Carly’s tax basis in the auto she received from Illini?

Tax Basis= ?

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Answer #1

a) Taxable Income = $4,85,000

Federal Income Tax = $1,01,850

Explanation :

Taxable income from operations

$5,00,000

Gain on distribution of Auto ($30,000-$15,000)

$15,000

Total taxable income

$4,85,000

Federal income tax ($4,85,000 x 21%)

$1,01,850

b) Illini's Current E & P = $3,83,150

Explanation :

Taxable income

$4,85,000

Less:

Federal income tax

($1,01,850)

Adjustment for E&P gain on distribution of Auto

0

Current E&P

$3,83,150

c)  Carly’s tax basis in the auto she received from Illini =$30,000

Explanation :

Tax basis in the auto Carly received from Illini = Fair Market Value of the Auto

= $30,000

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