Question

This year, Sooner Company reports current E&P of negative $320,000. Its accumulated E&P at the beginning of the year was $280,000. Sooner distributed $560,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $82,500. a.How much of the distribution is treated as a dividend to Boomer? b. What is Boomer’s tax basis in his Sooner stock after the distribution? c.What is Sooner’s balance in accumulated E&P on the first day of next year?

Answer 1

Ans
a)
Dividend	$121,315	ANS
Calculation of dividend
Accumulated E & P -(Current E & P *181/365)
280000-(320000*181/365)	$121,315
b)
Tax basis in his Sooner stock is $0
Beginning tax basis -lesser of excess of accumulated E & P or his basis in Sooner stock $82500
Beginning tax basis	$82,500
Lesseer of
(560000-121315)=438685	82500
or $82500
Hence tax bais is $0
c)
Balance of E & P on first day of next year	$161,315
Accumulated E & P	$280,000
Current year deficit	-320000
Dividend paid	($121,315)
	($161,315)
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