Question

On January 1, 2019 Gold Corporation (a calendar year taxpayer) has E&P of $50,000 and generates...

On January 1, 2019 Gold Corporation (a calendar year taxpayer) has E&P of $50,000 and generates no additional E&P during the 2019 year. On 12/30/19, the corporation distributes $95,000 to its sole shareholder, Walt (who has basis in Gold stock of $30,000). Determine the effect of this distribution on (a) Walt’s adjusted gross income; (b) on Walt’s basis in the GoldCorp stock; and (c) explain what happens to any balance from the distribution (i.e. how does Walt treat such a balance, for tax purposes)?

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Answer #1

a

Particulars Amount Remarks
Distribution $          95,000
Less: E&P balance $         (50,000) Dividend income
Balance $          45,000
Less: basis in stock $         (30,000) Return of basis
Balance capital gain $          15,000 Capital gain

Dividend income and capital gain increases gross income.

Effect on AGI = $50,000 + $15,000 = $65,000

b

Basis in stock is $0. Entire basis is returned.

c

Balance from distribution is capital gain. Capital gain is $15,000.

Please rate.

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