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Chapter 18 Corporate Taxation: Nonliquidating Distributions

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Question;Chapter 18;Corporate Taxation: Nonliquidating Distributions;True / False Questions;1. The;double taxation" of corporate income refers to the taxation of;corporate income at both the entity-level and the shareholder-level.;True False;2. A;distribution from a corporation to a shareholder will always be treated as a;dividend for tax purposes.;True False;3. A;corporation's "earnings and profits" account is equal to the;company's "retained earnings" account on its balance sheet.;True False;4. A;distribution from a corporation to a shareholder will only be treated as a;dividend for tax purposes if the distribution is paid out of current or;accumulated earnings and profits.;True False;5. Green;Corporation has current earnings and profits of $100,000 and negative;accumulated earnings and profits of ($200,000). A $50,000 distribution from;Green to its sole shareholder will not be treated as a dividend because total;earnings and profits is a negative $100,000.;True False;6. Green;Corporation has negative current earnings and profits of ($100,000) and;positive accumulated earnings and profits of $200,000. A $50,000 distribution;from Green to its sole shareholder will be treated as a dividend because total;earnings and profits is a positive $100,000.;True False;7. The term;earnings and profits" is well defined in the Internal Revenue Code.;True False;8. Only;income and deductions included on a corporation's income tax return are;included in the computation of current earnings and profits.;True False;9. Cedar;Corporation incurs a net capital loss of $20,000 in 20X3 that cannot be;deducted on its income tax return but must be carried forward to 20X4. Cedar;will deduct the net capital loss in the computation of current earnings and;profits for 20X3.;True False;10. Terrapin;Corporation incurs federal income taxes of $250,000 in 20X3. Terrapin deducts;the federal income taxes in computing its current earnings and profits for;20X3.;True False;11. Evergreen;Corporation distributes land with a fair market value of $200,000 to its sole;shareholder. Evergreen's tax basis in the land is $50,000. Assuming sufficient;earnings and profits, the amount of dividend reported by the shareholder is;$200,000.;True False;12. Evergreen;Corporation distributes land with a fair market value of $200,000 to its sole;shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will;report a gain of $150,000 on the distribution regardless of whether its;earnings and profits are positive or negative.;True False;13. Evergreen;Corporation distributes land with a fair market value of $50,000 to its sole;shareholder. Evergreen's tax basis in the land is $200,000. Evergreen will;report a loss of $150,000 on the distribution regardless of whether its;earnings and profits are positive or negative.;True False;14. Compensation;recharacterized by the IRS as a dividend because it was considered;unreasonable" will affect only the income tax liability of the;corporation paying the compensation.;True False;15. Unreasonable;compensation issues are more likely to arise in audits of privately held;corporations rather than publicly traded corporations.;True False;16. Stock;dividends are always tax-free to the recipient.;True False;17. The;recipient of a tax-free stock dividend will have a zero tax basis in the stock.;True False;18. The;recipient of a taxable stock dividend will have a tax basis in the stock equal;to the fair market value of the stock received.;True False;19. A stock;redemption is always treated as a sale or exchange for tax purposes.;True False;20. Tammy owns;60 percent of the stock of Huron Corporation. Unrelated individuals own the;remaining 40 percent. For a stock redemption to be treated as an exchange under;the "substantially disproportionate" rule, Tammy must reduce her;stock ownership to below 48 percent.;True False;21. Brothers;and sisters are considered "family" under the stock attribution rules;that apply to stock redemptions.;True False;22. Diego owns;30 percent of Azul Corporation. Azul Corporation owns 50 percent of Verde;Corporation. Under the attribution rules applying to stock redemptions, Diego;is treated as owning 15 percent of Verde Corporation.;True False;23. The;family attribution" rules are automatically waived in a complete;redemption of a shareholder's stock.;True False;24. Battle;Corporation redeems 20 percent of its stock for $100,000 in a stock redemption;that is treated as an exchange by the shareholders. Battle's E&P at the;date of the redemption is $200,000. Battle will reduce its earnings and profits;by $100,000 because of the redemption.;True False;25. A;distribution in partial liquidation of a corporation is always treated as a;sale or exchange by an individual shareholder.;True False;Multiple Choice Questions;26. Which;statement best describes the concept of the "double taxation" of;corporation income?;A. Corporate;income is subject to two levels of taxation: the regular tax and the;alternative minimum tax.;B. Corporate;income is taxed twice at the corporate level: first when earned and then a;second time if appreciated property is distributed to a shareholder.;C. Corporate;income is taxed when earned by a C corporation and then a second time at the;shareholder level when distributed as a dividend.;D. Corporate;income is subject to two levels of taxation: at the federal level and a second;time at the state level.;27. Which of;the following forms of earnings distributions would not be subject to double;taxation at the corporate and shareholder level?;A. Dividend;B. Stock;redemption;C. Partial;liquidation;D. Compensation;paid to a shareholder/employee of the corporation;28. Which of;the following statements best describes the priority of the tax treatment of a;distribution from a corporation to a shareholder?;A. The;distribution is a dividend to the extent of the corporation's earnings and;profits, then a return of capital, and finally gain from sale of stock.;B. The;distribution is a return of capital, then a dividend to the extent of the;corporation's earnings and profits, and finally gain from sale of stock.;C. The;distribution is a return of capital, then gain from sale of stock, and finally;a dividend to the extent of the corporation's earnings and profits.;D. The;shareholder can elect to treat the distribution as either a dividend to the;extent of the corporation's earnings and profits or a return of capital;followed by gain from sale of stock.;29. Which of;the following statements best describes current earnings and profits?;A. Current;earnings and profits is another name for a corporation's retained earnings on;its balance sheet.;B. Current;earnings and profits is a precisely defined tax term in the Internal Revenue;Code and represents a corporation's economic income.;C. Current;earnings and profits is an ill-defined tax concept in the Internal Revenue Code;and represents a corporation's economic income.;D. Current;earnings and profits is a conceptual tax concept with no definition in the Internal;Revenue Code.;30. Which of;the following statements best describes the role of current and accumulated;earnings and profits in determining if a distribution is a dividend?;A. A;distribution will only be a dividend if total earnings and profits (current;plus accumulated) is positive at the time of the distribution.;B. A;distribution can never be a dividend if current earnings and profits are;negative.;C. A;distribution will be a dividend if current earnings and profits for the year;are positive, even if accumulated earnings and profits are negative.;D. A;distribution will never be a dividend if current earnings and profits for the;year are negative, even if accumulated earnings and profits is positive.;31. A;calendar-year corporation has positive current E&P of $500 and accumulated;negative E&P of $1,200. The corporation makes a $400 distribution to its;sole shareholder. Which of the following statements is true?;A. The;distribution will not be a dividend because total earnings and profits is a;negative $700.;B. The;distribution may be a dividend, depending on whether total earnings and profits;at the date of the distribution is positive.;C. The;distribution will be a dividend because current earnings and profits are;positive and exceed the distribution.;D. A;distribution from a corporation to a shareholder is always a dividend;regardless of the balance in earnings and profits.;32. A;calendar-year corporation has negative current E&P of $500 and accumulated;positive E&P of $1,000. The corporation makes a $600 distribution to its;sole shareholder. Which of the following statements is true?;A. $500 of;the distribution will be a dividend because total earnings and profits is $500.;B. $0 of the;distribution will be a dividend because current earnings and profits are;negative.;C. $600 of;the distribution will be a dividend because accumulated earnings and profits is;$1,000.;D. Up to;$600 of the distribution could be a dividend depending on the balance in;accumulated earnings and profits on the date of the distribution.;33. Which of;these items is not an adjustment to taxable income or net loss to compute;current E&P?;A. Dividends;received deduction;B. Tax-exempt;income;C. Net;capital loss carryforward from the prior year tax return;D. Refund of;prior year taxes for an accrual method taxpayer;34. Grand;River Corporation reported taxable income of $500,000 in 20X3 and paid federal;income taxes of $170,000. Not included in the computation was a disallowed;meals and entertainment expense of $2,000, tax-exempt income of $1,000, and;deferred gain on an installment sale of $25,000. The corporation's current;earnings and profits for 20X3 would be;A. $524,000;B. $500,000;C. $354,000;D. $331,000;35. Au Sable;Corporation reported taxable income of $800,000 in 20X3 and paid federal income;taxes of $272,000. Not included in the computation was a disallowed penalty of;$25,000, life insurance proceeds of $100,000, and an income tax refund from;20X2 of $50,000. Au Sable is an accrual basis taxpayer. The corporation's;current earnings and profits for 20X3 would be;A. $875,000;B. $653,000;C. $603,000;D. $553,000;36. Oakland;Corporation reported a net operating loss of $500,000 in 20X3 and elected to;carry the loss forward to 20X4. Not included in the computation was a;disallowed meals and entertainment expense of $20,000, tax-exempt income of;$10,000, and deferred gain on an installment sale of $250,000. The;corporation's current earnings and profits for 20X3 would be;A. ($500,000);B. ($720,000);C. ($510,000);D. ($260,000);37. Packard;Corporation reported taxable income of $1,000,000 in 20X3 and paid federal;income taxes of $340,000. Included in the taxable income computation was a;dividends received deduction of $5,000, a net capital loss carryover from 20X2;of $10,000, and gain of $50,000 from an installment sale that took place in;20X1. The corporation's current earnings and profits for 20X3 would be;A. $1,015,000;B. $965,000;C. $675,000;D. $625,000;38. Abbot;Corporation reported a net operating loss of $400,000 in 20X3, which the;corporation elected to carry forward to 20X4. Included in the computation of;the loss was regular depreciation of $100,000 (E&P depreciation is;$40,000), first year expensing under ?179 of $50,000, and a dividends received;deduction of $10,000. The corporation's current earnings and profits for 20X3;would be;A. ($290,000);B. ($330,000);C. ($400,000);D. ($490,000);39. Madison;Corporation reported taxable income of $400,000 in 20X3 and accrued federal;income taxes of $136,000. Included in the computation of taxable income was;regular depreciation of $200,000 (E&P depreciation is $60,000) and a net;capital loss carryover of $20,000 from 20X2. The corporation's current earnings;and profits for 20X3 would be;A. $424,000;B. $404,000;C. $380,000;D. $344,000;40. Greenwich;Corporation reported a net operating loss of $800,000 in 20X3, which the;corporation elected to carry forward to 20X4. The computation of the loss did;not include a disallowed fine of $50,000, life insurance proceeds of $500,000;and a current year charitable contribution of $10,000 that will be carried;forward to 20X4. The corporation's current earnings and profits for 20X3 would;be;A. ($250,000);B. ($260,000);C. ($300,000);D. ($360,000);41. Bruin;Company reports current E&P of $200,000 in 20X3 and accumulated E&P at;the beginning of the year of $100,000. Bruin distributed $400,000 to its sole;shareholder on January 1, 20X3. How much of the distribution is treated as a;dividend in 20X3?;A. $400,000;B. $300,000;C. $200,000;D. $100,000;42. Aztec;Company reports current E&P of $200,000 in 20X3 and accumulated E&P at;the beginning of the year of negative $100,000. Aztec distributed $300,000 to;its sole shareholder on January 1, 20X3. How much of the distribution is;treated as a dividend in 20X3?;A. $300,000;B. $200,000;C. $100,000;D. $0;43. Inca;Company reports current E&P of negative $100,000 in 20X3 and accumulated;E&P at the beginning of the year of $200,000. Inca distributed $300,000 to;its sole shareholder on January 1, 20X3. How much of the distribution is;treated as a dividend in 20X3?;A. $0;B. $100,000;C. $200,000;D. $300,000;44. Wildcat;Corporation reports current E&P of negative $200,000 in 20X3 and;accumulated E&P at the beginning of the year of $100,000. Wildcat;distributed $300,000 to its sole shareholder on December 31, 20X3. How much of;the distribution is treated as a dividend in 20X3?;A. $0;B. $100,000;C. $200,000;D. $300,000;45. Beaver;Company reports current E&P of $100,000 in 20X3 and accumulated E&P at;the beginning of the year of $200,000. Beaver distributed $400,000 to its sole;shareholder on January 1, 20X3. The shareholder's tax basis in her stock in;Beaver is $200,000. How is the distribution treated by the shareholder in 20X3?;A. $400,000;dividend;B. $100,000;dividend, $200,000 tax-free return of basis, and $100,000 capital gain;C. $200,000;dividend and $200,000 tax-free return of basis;D. $300,000;dividend and $100,000 tax-free return of basis;46. Longhorn;Company reports current E&P of $100,000 in 20X3 and accumulated E&P at;the beginning of the year of negative $200,000. Longhorn distributed $300,000;to its sole shareholder on January 1, 20X3. The shareholder's tax basis in his;stock in Longhorn is $100,000. How is the distribution treated by the;shareholder in 20X3?;A. $300,000;dividend;B. $100,000;dividend, $100,000 tax-free return of basis, and $100,000 capital gain;C. $100,000;dividend and $200,000 tax-free return of basis;D. $0;dividend, $100,000 tax-free return of basis, and $200,000 capital gain;47. Husker;Corporation reports current E&P of negative $200,000 in 20X3 and;accumulated E&P at the beginning of the year of $300,000. Husker;distributed $200,000 to its sole shareholder on December 31, 20X3. The;shareholder's tax basis in her stock in Husker is $50,000. How is the;distribution treated by the shareholder in 20X3?;A. $200,000;dividend;B. $100,000;dividend, $50,000 tax-free return of basis, and $50,000 capital gain;C. $100,000;dividend and $100,000 tax-free return of basis;D. $0;dividend, $50,000 tax-free return of basis, and $150,000 capital gain;48. Tar Heel;Corporation had current and accumulated E&P of $500,000 at December 31;20X3. On December 31, the company made a distribution of land to its sole;shareholder, William Roy. The land's fair market value was $100,000 and its tax;and E&P basis to Tar Heel was $25,000. William assumed a mortgage attached;to the land of $10,000. The tax consequences of the distribution to William in;20X3 would be;A. $100,000;dividend and a tax basis in the land of $100,000;B. $100,000;dividend and a tax basis in the land of $90,000;C. Dividend;of $90,000 and a tax basis in the land of $100,000;D. Dividend;of $90,000 and a tax basis in the land of $90,000;49. Cavalier;Corporation had current and accumulated E&P of $500,000 at December 31;20X3. On December 31, the company made a distribution of land to its sole;shareholder, Tom Jefferson. The land's fair market value was $200,000 and its;tax and E&P basis to Cavalier was $50,000. The tax consequences of the;distribution to Cavalier in 20X3 would be;A. No gain;recognized and a reduction in E&P of $200,000;B. $150,000;gain recognized and a reduction in E&P of $200,000;C. $150,000;gain recognized and a reduction in E&P of $50,000;D. No gain;recognized and a reduction in E&P of $50,000;50. Montclair;Corporation had current and accumulated E&P of $500,000 at December 31;20X3. On December 31, the company made a distribution of land to its sole;shareholder, Molly Pitcher. The land's fair market value was $200,000 and its;tax and E&P basis to Montclair was $50,000. Molly assumed a liability of;$25,000 attached to the land. The tax consequences of the distribution to;Montclair in 20X3 would be;A. No gain;recognized and a reduction in E&P of $200,000;B. $150,000;gain recognized and a reduction in E&P of $200,000;C. $150,000;gain recognized and a reduction in E&P of $175,000;D. No gain;recognized and a reduction in E&P of $175,000;51. Catamount;Company had current and accumulated E&P of $500,000 at December 31, 20X3.;On December 31, the company made a distribution of land to its sole;shareholder, Caroline West. The land's fair market value was $200,000 and its;tax and E&P basis to Catamount was $250,000. The tax consequences of the;distribution to Catamount in 20X3 would be;A. No loss;recognized and a reduction in E&P of $250,000;B. $50,000;loss recognized and a reduction in E&P of $250,000;C. $50,000;loss recognized and a reduction in E&P of $150,000;D. No loss;recognized and a reduction in E&P of $200,000;52. Paladin;Corporation had current and accumulated E&P of $500,000 at December 31;20X3. On December 31, the company made a distribution of land to its sole;shareholder, Maria Mendez. The land's fair market value was $200,000 and its;tax and E&P basis to Paladin was $250,000. Maria assumed a liability of;$25,000 attached to the land. The tax consequences of the distribution to;Paladin in 20X3 would be;A. No loss;recognized and a reduction in E&P of $200,000;B. $50,000;loss recognized and a reduction in E&P of $200,000;C. $50,000;loss recognized and a reduction in E&P of $225,000;D. No loss;recognized and a reduction in E&P of $225,000;53. Which of;the following payments could be treated as a constructive dividend by the IRS?;A. End-of-year;bonus payment to a shareholder/employee;B. Rent paid;to a shareholder/lessor;C. Interest;paid to a shareholder/creditor;D. All of;these payments could be treated as a constructive dividend by the IRS;54. Which of;the following factors would not be considered in determining if compensation;paid to a shareholder/employee is reasonable?;A. The;individual's duties and responsibilities;B. What;individuals performing in comparable capacities at other companies are paid;C. Whether;the corporation has a formal compensation policy;D. The;individual's marginal income tax rate;55. Which of;the following statements is not considered a potential answer to the dividend;puzzle (why do corporations pay dividends)?;A. Paying;dividends avoids the double taxation of corporate income;B. Demanding;that managers pay out dividends restricts their investment activities and;forces them to adopt more efficient investment policies;C. Paying;dividends is a source of investor goodwill;D. Dividends;are a signal to the capital markets about the health of a corporation's;activities;56. Which of;the following stock dividends would be tax-free to the shareholder?;A. A 2-for-1;stock split to all holders of common stock;B. A stock;dividend where the shareholder could choose between cash and stock;C. A stock;dividend to all holders of preferred stock;D. Both a;2-for-1 stock split to all holders of common stock and a stock dividend to all;holders of preferred stock are tax-free to the shareholder;57. El Toro;Corporation declared a common stock dividend to all shareholders of record on;June 30, 20X3. Shareholders will receive 1 share of El Toro stock for each 2;shares of stock they already own. Raoul owns 300 shares of El Toro stock with a;tax basis of $60 per share. The fair market value of the El Toro stock was $100;per share on June 30, 20X3. What are the tax consequences of the stock dividend;to Raoul?;A. $0;dividend income and a tax basis in the new stock of $100 per share;B. $0;dividend income and a tax basis in the new stock of $60 per share;C. $0;dividend income and a tax basis in the new stock of $40 per share;D. $15,000;dividend and a tax basis in the new stock of $100 per share;58. Wonder;Corporation declared a common stock dividend to all shareholders of record on;September 30, 20X3. Shareholders will receive three shares of Wonder stock for;each five shares of stock they already own. Diana owns 300 shares of Wonder;stock with a tax basis of $90 per share (a total basis of $27,000). The fair;market value of the Wonder stock was $180 per share on September 30, 20X3. What;are the tax consequences of the stock dividend to Diana?;A. $0;dividend income and a tax basis in the new stock of $180 per share;B. $0;dividend income and a tax basis in the new stock of $67.50 per share;C. $0;dividend income and a tax basis in the new stock of $56.25 per share;D. $10,800;dividend and a tax basis in the new stock of $180 per share;59. Which of;the following individuals is not considered "family" for purposes of;applying the stock attribution rules to a stock redemption?;A. Parents;B. Grandchildren;C. Grandparents;D. Spouse;60. Which of;the following statements is true?;A. All stock;redemptions are treated as exchanges for tax purposes.;B. A stock;redemption not treated as an exchange will automatically be treated as a;taxable dividend.;C. All stock;redemptions are treated as dividends if received by an individual.;D. A stock;redemption is treated as an exchange only if it meets one of three stock;ownership tests described in the Internal Revenue Code.;61. Sam owns;70 percent of the stock of Club Corporation. Unrelated individuals own the;remaining 30 percent. For a stock redemption of Sam's stock to be treated as an;exchange under the "substantially disproportionate" test, what;percentage of Club stock must Sam own after the redemption?;A. Any;percentage less than 70 percent;B. Any;percentage less than 56 percent;C. Any;percentage less than 50 percent;D. All stock;redemptions involving individuals are treated as exchanges;62. Sara owns;60 percent of the stock of Lea Corporation. Unrelated individuals own the;remaining 40 percent. For a stock redemption of Sara's stock to be treated as;an exchange under the "substantially disproportionate" test, what;percentage of Lea stock must Sara own after the redemption?;A. Any;percentage less than 60 percent;B. Any;percentage less than 50 percent;C. Any;percentage less than 48 percent;D. All stock;redemptions involving individuals are treated as exchanges;63. Comet;Company is owned equally by Pat and his sister Pam, each of whom hold 100;shares in the company. Pam wants to reduce her ownership in the company, and it;was decided that the company will redeem 50 of her shares for $1,000 per share;on December 31, 20X3. Pam's income tax basis in each share is $500. Comet has;total E&P of $250,000. What are the tax consequences to Pam because of the;stock redemption?;A. $25,000;capital gain and a tax basis in each of her remaining shares of $500.;B. $25,000;capital gain and a tax basis in each of her remaining shares of $100.;C. $50,000;dividend and a tax basis in each of her remaining shares of $100.;D. $50,000;dividend and a tax basis in each of her remaining shares of $50.;64. Comet;Company is owned equally by Pat and his sister Pam, each of whom hold 100;shares in the company. Comet redeems 50 of Pam's shares on December 31, 20X3;for $1,000 per share in a transaction that Pam treats as an exchange for tax;purposes. Comet has total E&P of $250,000 on December 31, 20X3. What are;the tax consequences to Comet because of the stock redemption?;A. No;reduction in E&P because of the exchange.;B. A;reduction of $50,000 in E&P because of the exchange.;C. A;reduction of $62,500 in E&P because of the exchange.;D. A;reduction of $125,000 in E&P because of the exchange.;65. Comet;Company is owned equally by Pat and his sister Pam, each of whom hold 100;shares in the company. Comet redeems 50 of Pam's shares on December 31, 20X3;for $1,000 per share in a transaction that Pam treats as an exchange for tax;purposes. Comet has total E&P of $160,000 on December 31, 20X3. What are;the tax consequences to Comet because of the stock redemption?;A. No;reduction in E&P because of the exchange.;B. A;reduction of $50,000 in E&P because of the exchange.;C. A;reduction of $40,000 in E&P because of the exchange.;D. A;reduction of $80,000 in E&P because of the exchange.;66. Viking;Corporation is owned equally by Sven and his wife Olga, each of whom hold 100;shares in the company. Viking redeemed 75 shares of Sven's stock in the company;on December 31, 20X3. Viking paid Sven $2,000 per share. His income tax basis;in each share is $1,000. Viking has total E&P of $500,000. What are the tax;consequences to Sven because of the stock redemption?;A. $75,000;capital gain and a tax basis in each of his remaining shares of $1,000.;B. $75,000;capital gain and a tax basis in each of his remaining shares of $2,000.;C. $150,000;dividend and a tax basis in each of his remaining shares of $1,000.;D. $150,000;dividend and a tax basis in each of his remaining shares of $4,000.;67. Viking;Corporation is owned equally by Sven and his wife Olga, each of whom hold 100;shares in the company. Viking redeemed 75 shares of Sven's stock for $2,000 per;share on December 31, 20X3. Viking has total E&P of $500,000. What are the;tax consequences to Viking because of the stock redemption?;A. No;reduction in E&P because of the exchange.;B. A;reduction of $150,000 in E&P because of the exchange.;C. A;reduction of $187,500 in E&P because of the exchange.;D. A;reduction of $375,000 in E&P because of the exchange.;68. Corona;Company is owned equally by Maria, her sister Carlita, her mother Gabriella;and her grandmother Olivia, each of whom hold 100 shares in the company. Under;the family attribution rules, how many shares of Corona stock is Maria deemed;to own?;A. 100;B. 200;C. 300;D. 400;69. Panda;Company is owned equally by Min, her husband Bin, her sister Xiao, and her;grandson, Han, each of whom hold 100 shares in the company. Under the family;attribution rules, how many shares of Panda stock is Min deemed to own?;A. 100;B. 200;C. 300;D. 400;70. Beltway;Company is owned equally by George, his brother Thomas, and a partnership owned;50 percent by George and his father Abe. Each of the three shareholders holds;100 shares in the company. Under the ?318 stock attribution rules, how many;shares of Beltway stock is George deemed to own?;A. 100;B. 150;C. 200;D. 300;71. Lansing;Company is owned equally by Jennifer, her husband Dan, and DeWitt Corporation;which is owned 50 percent by Jennifer and her sister Jane. Each of the three;shareholders holds 100 shares in the company. Under the ?318 stock attribution;rules, how many shares of Lansing stock is Jennifer deemed to own?;A. 100;B. 200;C. 250;D. 300;72. Lansing;Company is owned equally by Jennifer, her husband Dan, and DeWitt Corporation;which is owned 50 percent by Jennifer and her sister Jane. Each of the three;shareholders holds 100 shares in the company. Under the ?318 stock attribution;rules, how many shares of Lansing stock is DeWitt Corporation deemed to own?;A. 100;B. 200;C. 250;D. 300;73. Tammy owns;100 shares in Star Struck Corporation. The other 100 shares are owned by her;husband Tommy. Which of the following statements is true?;A. A stock;redemption that completely terminates Tammy's direct interest in a corporation;will be treated as an exchange for tax purposes.;B. A stock;redemption that completely terminates Tammy's direct interest in a corporation;will be treated as a dividend for tax purposes.;C. A stock;redemption that completely terminates Tammy's direct interest in a corporation;will be treated as an exchange if Tammy waives the family attribution rules and;files a "triple i" agreement with the IRS.;D. A stock;redemption that completely terminates Tammy's direct interest in a corporation;will be treated as a dividend to the extent that the redemption exceeds Tammy's;tax basis in the redeemed shares.;74. General;Inertia Corporation made a distribution of $50,000 to Henry Tiara in partial;liquidation of the company on December 31, 20X3. Henry owns 500 shares (50%) of;General Inertia. The distribution was in exchange for 250 shares of Henry's;stock in the company. After the partial liquidation, Henry continued to own 50%;of the remaining stock in General Inertia. At the time of the distribution, the;shares had a fair market value of $200 per share. Henry's income tax basis in;the shares was $100 per share. General Inertia had total E&P of $800,000 at;the time of the distribution. What are the tax consequences to Henry because of;the transaction?;A. Henry has;dividend income of $50,000 and a tax basis in his remaining shares of $100 per;share.;B. Henry has;capital gain of $25,000 and a tax basis in his remaining shares of $100 per;share.;C. Henry has;dividend income of $50,000 and a tax basis in his remaining shares of $200 per;share.;D. Henry has;capital gain of $25,000 and a tax basis in his remaining shares of $200 per;share.;75. General;Inertia Corporation made a pro rata distribution of $50,000 to Tiara, Inc. in;partial liquidation of the company on December 31, 20X3. Tiara, Inc. owns 500;shares (50%) of General Inertia. The distribution was in exchange for 250;shares of Tiara's stock in the company. After the partial liquidation, Tiara;continued to own 50% of the remaining stock in General Inertia. At the time of;the distribution, the shares had a fair market value of $200 per share. Tiara's;income tax basis in the shares was $100 per share. General Inertia had total;E&P of $800,000 at the time of the distribution. What amount of dividend or;capital gain does Tiara recognize because of the transaction?;A. Tiara;does not recognize any dividend income or capital gain.;B. Tiara;recognizes capital gain of $50,000.;C. Tiara recognizes;dividend income of $50,000.;D. Tiara;recognizes capital gain of $25,000.;Essay Questions;76. Superior;Corporation reported taxable income of $1,000,000 in 20X3. Superior paid a;dividend of $100,000 to its sole shareholder, Mary Yooper. Superior Corporation;is subject to a flat rate tax of 34%. The dividend meets the requirements to be;a "qualified dividend" and Mary is subject to a tax rate of 15% on;the dividend. What is the total federal income tax imposed on the corporate income;earned by Superior and distributed to Mary as a dividend?;77. Erie;Corporation reported taxable income of $2,200,000 in 20X3 before any deduction;for any payment to its sole shareholder and employee, LaBron Cleveland. Erie;paid a bonus of $200,000 to LaBron at year-end. Erie Corporation is subject to;a flat-rate tax of 34%. The bonus meets the requirements to be;reasonable" and is therefore deductible by Erie. LaBron is subject;to a marginal tax rate of 35% on the bonus. What is the total federal income;tax imposed on the corporate income earned by Erie and paid to LaBron as a;bonus?;78. St. Clair;Company reports positive current E&P of $500,000 in 20X3 and positive;accumulated E&P at the beginning of the year of $400,000. St. Clair Company;distributed $600,000 to its sole shareholder, Danielle Brush on December 31;20X3. Danielle's tax basis in her St. Clair stock is $120,000. How much of the;$600,000 distribution is treated as a dividend to Danielle and what is her;basis in St. Clair stock after the distribution?;79. Austin;Company reports positive current E&P of $200,000 and negative accumulated;E&P of $300,000. Austin distributed $250,000 to its sole shareholder, Betsy;Bevo, on December 31, 20X3. Betsy' tax basis in her stock is $125,000. How much;of the $250,000 distribution is treated as a dividend to Betsy and what is her;tax basis in Austin stock after the distribution?;80. Elk;Company reports negative current E&P of $200,000 and positive accumulated;E&P of $300,000. Elk distributed $200,000 to its sole shareholder, Barney;Rubble, on December 31, 20X3. Barney's tax basis in his Elk stock is $75,000.;What is the tax treatment of the distribution to Barney and what is his tax;basis in Elk stock after the distribution?;81. Houghton;Company reports negative current E&P of ($500,000) and negative acc

 

Paper#38067 | Written in 18-Jul-2015

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