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6-5. Compare the tax consequences to the shareholder and the

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6-5. Compare the tax consequences to the shareholder and the distributing corporation of the following three kinds of corporate distributions: ordinary dividends, stock redemptions, and complete liquidations 4-29 Current E&P Computation. Water Corporation;reports $500,000 of taxable income for the current year. The following additional information is available:? For the current year, Water reports an $80,000 long-term capital loss and no capital gains.? Taxable income includes $80,000 of dividends from a 10%-owned;domestic corporation.? Water paid fines and penalties of $6,000 that were not deducted in computing taxable income.? In computing this year?s taxable income, Water deducted a $20,000 NOL carryover from a prior tax year.? Water claimed a $10,000 U.S. production;activities deduction.? Taxable income includes a deduction for $40,000 of depreciation that exceeds the depreciation allowed for E&P purposes. Assume a 34% corporate tax rate. What is Water?s current E&P for this year? C:4-52 Comparison of Dividends and Redemptions.;Bailey is one of four equal unrelated shareholders of Checker Corporation. Bailey has held Checker stock for four years and has a basis in her stock of $40,000. Checker has $280,000 of current and accumulated E&P and distributes $100,000 to Bailey. a. What;are the tax consequences to Checker and to Bailey if Bailey is an individual and the distribution is treated as a dividend? b. In Part a, what would be the tax consequences if Bailey were a corporation? c. What are the tax consequences to Checker and to Bailey;(an individual) if Bailey surrenders all her stock in a redemption qualifying for sale treatment? d. In Part c, what would be the tax consequences if Bailey were a corporation? e. Which treatment would Bailey prefer if Bailey were an individual? Which treatment;would Bailey Corporation prefer?

 

Paper#77713 | Written in 18-Jul-2015

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