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Regulation > 9.3 - Distributions > Flashcards

9.3 - Distributions Flashcards

1
Q

Distributions

What is a distribution?

A
  • Any transfer of property by a corporation to any of its shareholders with respect to shareholder’s shares in the corporation
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2
Q

Distributions

Define “property” in the form of distributions

A
  • Money
  • Bonds or other obligations
  • Stock on other corporations (not of the distributing corporation)
    • Other property including receivables
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3
Q

Distributions

Define the formula used to calculate the distribution amount:

A

Money + Obligations (FMV) e.g. bond + Property (FMV), other - Related liabilities, recourse or not = Distribution amount

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4
Q

Corporate Treatment

Identify the form and due date of required filing for corporations who issue dividends

A
  • Form 1099-DIV
  • Due 2/28th of the following year
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5
Q

Corporate Treatment

Identify the financial actions or distributions of the corporation that would cause them to have to file Form 1099-DIV?

A
  • Paid gross dividends of $10 +
  • Withheld any federal income taxes under the backup withholding rules
  • $600 + payment as liquidation
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6
Q

Corporate Loss Unrecognized

Identify the corporate accouting treatment of a distribution if the AB > FMV

A

No loss realized on an ordinary distribution of property may be recognized

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7
Q

Corporate Loss Unrecognized

What basis does a shareholder take in property if the corporate loss of distribution is not recognized?

A

FMV basis in property

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8
Q

Corporate Loss Unrecognized

How is stock owned by related parties attributed?

A

to the shareholder

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9
Q

Corporate Loss Unrecognized

How is the gain realized on a subsequent taxable disposition to an unrelated party treated?

A

it is recognized only to the extent it exceeds previously disallowed losses

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10
Q

Corporate Gain Recognized

How is gain realized on distributed property treated by the corporation?

A

gain recognized as if sold to distributor at its FMV

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11
Q

Corporate Gain Recognized

True or False >>> Gain is recognized on distribution of money or obligations the corporation issues

A

False -

  • No gain recognized on distribution of money or obligations it issues
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12
Q

Corporate Gain Recognized

True or False >>> FMV cannot be less than property liabilities in a corporate distribution

A

True

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13
Q

Corporate Gain Recognized

How is the character of recognized gain determined in a corporate distribution?

A

by treating distribution as a sale to shareholder

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14
Q

Corporate Gain Recognized

True or False >>>

  • Gain recognized on depreciable property with shareholder having more than 50% distributee is OI
A

True

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15
Q

Corporate Gain Recognized

What effect does recognized gains have on E&P?

A

increase

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16
Q

Corporate Gain Recognized

What effect does tax on gains have on E&P?

A

decrease E&P

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17
Q

Corporate Gain Recognized

How do liabilities assumed by shareholder impact earnings and profits?

A

increases earnings and profits

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18
Q

Corporate Gain Recognized

How does the FMV of distributed property impact earnings and profits?

A

reduces earnings and profits

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19
Q

Shareholder Treatment: Dividends

Define the treatment of a distribution as a dividend

A
  • Distribution is a dividend to extent of current E&P and then to accumulated E&P
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20
Q

Shareholder Treatment: Dividends

Identify the dividend treatment when yearly distributions are > current earnings and profits

A
  • Pro rata portions deemed to be from current E&P
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21
Q

Shareholder Treatment: Dividends

Identify the treatment of prorata portions when distributions are > current E&P and the current E&P balance is negative

A

prorate negative balance to date of each distribution made during the year

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22
Q

Shareholder Treatment: Dividends

Identify the treatment of prorata portions when distributions are > current E&P and the current E&P balance is positive

A
  • the positive balance computed as of close of taxable year without regard to amount of E&P at time of distribution
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23
Q

Shareholder Treatment: Dividends

True or False >>>

  • Distribution treatment determined by reference to accumulated E&P only after current E&P accounted for
A

True

24
Q

Shareholder Treatment: Capital Recovery

Describe the treatment of distribution amounts in excess of dividends

A
  • treated as tax-exempt return of capital
25
Q

Shareholder Treatment: Capital Recovery

How do distributions in excess of dividends impact basis?

A

Reduce basis - but not below zero

26
Q

Shareholder Treatment: Capital Recovery

Identify the treatment of excess distributions over dividends amongst shares with different bases

A

apportion the distribution amongst the shares if they have different bases

27
Q

Shareholder Treatment: Gain on Sale

Define gain on sale of a distribution

A

Excess distribution amount over E&P and basis

28
Q

Shareholder Treatment: Gain on Sale

How is the character of the gain on sale determined?

A

by the nature of the property (capital asset or dealer property)

29
Q

Shareholder Treatment: Gain on Sale

When does shareholder recognize loss on stock distribution?

A

if stock becomes worthless or is redeemed

30
Q

Shareholder Treatment: Basis in Distributed Property

What is the shareholder’s basis in non-liquidating distribution property?

A

FMV at time of distribution

31
Q

Shareholder Treatment: Basis in Distributed Property

If the shareholder assume liabilities of the distributed property that are < FMV, then the shareholder’s basis =

A

FMV

32
Q

Shareholder Treatment: Basis in Distributed Property

If the shareholder assume liabilities that are > FMV, then the shareholder’s basis =

A

Liability assumed

33
Q

Extraordinary Dividend

What qualifies a dividend as an extraordinary dividend?

A
  • Dividend on stock held 2 years or less, and
  • Exceeds 10% (5% for preferred stock) of either basis or FMV of stock
34
Q

Extraordinary Dividend

How is the shareholder affected when stock is sold on which an extraordinary dividend was received?

A

additional gain is recognized

35
Q

Extraordinary Dividend

How does the nontaxed portion (DRD) of the extraordinary dividend impact basis?

A

basis is reduced by nontaxed portion (DRD) of the extraordinary dividend

36
Q

Extraordinary Dividend

Identify the financial impact of the nontaxed portion (DRD) exceeding the stocks’ basis

A
  • Excess treated as gain in year extraordinary dividend received
37
Q

Stock Distributions

Do corporations recognize gain or loss on distribution of own stock?

A

No

38
Q

Stock Distributions

Do shareholders include distribution of stock or rights to acquire stock in gross income?

A

No - but certain exceptions apply

39
Q

Stock Distributions

Identify the exceptions, if any, to a shareholder including the distribution of stock or rights to acquire stock in gross income

A
  • Exceptions:
    • Distribution in lieu of money (treated as a dividend)
    • Disproportionate distribution
    • Distribution of preferred stock
    • Distribution of convertible preferred stock
    • Distribution of common & preferred stock
40
Q

Stock Distributions: Proportionate Distribution

Describe the proportionate distribution of stock process

A
  • Shareholder allocates aggregate basis (AB) in the old stock to the old stock & new stock in proportion to FMV of old & new stock
    • Basis apportioned by relative FMV to different classes of stock if applicable
41
Q

Stock Distributions: Proportionate Distribution

How is the holding period of distributed stock treated in a proportionate distribution?

A

tacked - meaning it includes holding period of old stock

42
Q

Stock Distributions: Proportionate Distribution

How do tax free stock dividends impact earnings & profits?

A

It does not - no impact

43
Q

Stock Distributions: Stock Rights

How are stock rights treated in a stock distribution?

A

as a distribution of the stock

44
Q

Stock Distributions: Stock Rights

How is basis allocated in a stock rights distribution?

A
  • Basis allocated based on FMV of the rights
45
Q

Stock Distributions: Stock Rights

What is the basis of the stock rights if aggregate FMV is < 15% of FMV of stock on which they were distributed on, unless shareholder chooses to allocate

A

Basis = $0

46
Q

Stock Distributions: Stock Rights

What is the basis in a stock if the right is exercised?

A

Any basis allocated to the right + the exercise price

47
Q

Stock Distributions: Stock Rights

When does the holding period of stock begin that has been exercised?

A

on the exercise date

48
Q

Stock Distributions: Stock Rights

Is a deduction allowed for basis allocated to lapsed stock rights?

A

No

49
Q

Taxable Stock Distribution

Identify the amount of distribution subject to tax in a taxable stock distribution

A
  • FMV (unless otherwise stated) of distributed stock or stock rights
50
Q

Taxable Stock Distribution

Identify 3 distributions that are subject to tax

A
  • Distribution of stock or other property
    • Distribution amount = > of FMV of stock or cash or FMV of other property
  • Increase in proportionate interest
  • Receipt of common or preferred stock
51
Q

Taxable Stock Distribution

How is earnings and profits impacted by the FMV of stock and stock rights distributed?

A

Earnings and profits are reduced by the FMV of stock and stock rights distributed

52
Q

Taxable Stock Distribution

What is the impact on the basis to the underlying stock in a taxable stock distribution?

A
  • Basis in underlying stock does not change
    • Basis in new stock or stock rights is their FMV
53
Q

Taxable Stock Distribution

When does the holding period start for new stock in a taxable stock distribution?

A
  • Holding period for new stock begins on day after distribution date
    • There is no tacking of holding period for underlying stock if distribution is taxable
54
Q

Stock Split

Is a stock split considered a distribution?

A

No

55
Q

Stock Split

How is basis accounted for in a stock split?

A
  • Basis in old stock is “split” and allocated to new stock
56
Q

How do stock splits impact the holding period of stock?

A
  • Holding period of new stock includes that of old stock (tacked)
    • Stock splits are not taxable transactions

Regulation (67 decks)

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