Corp. Income Taxes: Capital Contributions and Deductions

Question 1

In a nonliquidating distribution of property from corp. to owner, what amount of income is recognized by the corp?

Answer 1

1. The company must report the transaction as if it had been sold for FV w/money given as cash dividend.
2. G/L = (FV * # of shares) - (BV * # of shares).
   Or, FV - tax basis

Question 2

In a nonliquidating distribution of property from corp. to owner, what amount of income is recognized by the owner?

Answer 2

Dividend income = FV * # of shares

Question 3

In a nonliquidating distribution of property from corp. to owner, what amount of income is recognized by the owner if debt remains?

Answer 3

Gain = FV - debt remaining.

Question 4

What is the basis of property transferred?

Answer 4

1. FV of shares received.

2. OR, previous basis +/- G/L recognized on transfer, which = FV of shares received.

Question 5

When 80+% of outstanding stock received…

Answer 5

1. Tax-free incorporation.

2. No income or FV effect on tax basis.

Question 6

When corp. distributions > E&P, how are corp. distributions allocated to PS owners? To CS owners?

Answer 6

1. PS owners = E&P allocated to corp. distributions in full.
2. CS owners = remainder of E&P allocated to corp. distributions. The remaining corp. distributions is a nontaxable distribution to CS owners.