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)?

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.

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