Question

# This year, Sooner Company reports current E&P of negative \$320,000. Its accumulated E&P at the beginning...

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?

 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) If any doubt please comment

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