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) | ||
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