Benson Corp. has current "E & P" = $30,000. It has an accumulated deficit = ($60,000) as of the beginning of its current year. The corporation made distributions to its shareholders during the current year = $20,000.
a/ What portion of the distributions is a dividend?
b/ What is the accumulated E & P at the end of the current year?
2/ Swenson Corp.'s overall performance improved this year. As a result, it made three distributions to its sole shareholder Mr. Swenson, during the year as follows:
March 24: $40,000
August 2: 48,000
October 19: 72,000
Current E & P = $60,000
Accumulated E & P = $40,000
Assume Mr. Swenson has at least $60,000 basis in his stock.
a/ Analyze what portion of each distribution is a dividend.
b/ Are there any other tax consequences to Mr. Swenson?
3/ At the beginning of the current year, Charles owns all of X Corp.'s outstanding stock. His basis in the stock is $80,000. On July 1, he sells all of his stock to Donald for $125,000. During the current year, X Corp., a calendar-year taxpayer, makes two cash distributions: $60,000 on March 1 to Charles and $90,000 on Sept. 1 to Donald.
Also: Current E & P = ($36,500)
Accum. E & P = $120,000
Analyze the tax consequences of these distributions.
What are the amount and character of Charles's gain on his sale of stock to Donald?
What is Donald's basis in his X Corp. stock at the end of the year?