Biolsi Corporation, a C corporation, has two equal shareholders, Donna and Ashley. Biolsi earned $300,000 net profit during the current year and distributed $150,000 to each shareholder (total of $300,000). Biolsi has a total of $150,000 of Earnings and Profits. Donna’s basis in her stock is $100,000 and Ashley’s basis in her stock is $50,000. Donna sells her stock in 2015 for $200,000. Assume that Biolsi’s tax rate is 30% . Also assume that Donna’s and Garbriela’s marginal tax rate are 25% therefore the dividend rate would be 15%.
What is the impact based on these facts to Biolsi, Donna and Ashley?
How would your answer change if this was an S corporation? Note, that with an S Corp, net income increases the basis of the shareholders therefore Donna’s basis would be $250,000 and Ashley’s basis would be $200,000. Explain your answer