EA Part 2-Passkey 15 Corp. Distributions

Question 1

The most common kinds of corporate distributions are:

Answer 1

• ordinary dividends (in cash or property)
• capital gain distributions
• nondividend distributions
• distributions of stock or stock rights

Question 2

The FMV of distributed property becomes the shareholder’s __

Answer 2

basis in the property.

Question 3

A corp. must send Forms 1099-DIV to the IRS along with Form __

Answer 3

Form 1096 Annual Summary and Transmittal of U.S. Information Returns, by Feb. 28 or Mar. 31 if filing electronically.

Question 4

Distributions of a C corp. are deducted first from current E&P, and then from any __

Answer 4

accumulated E&P from prior years. Any from current-year or accum. E&P are reported as dividend income to the shareholder.

Question 5

Corporate distributions in excess of E&P are nontaxable to the shareholder __

Answer 5

to the extent of the SH’s stock basis.

Question 6

These transactions INCREASE the amount of E&P:

Answer 6

• long-term contracts reported on the completed contract method
• intangible drilling costs deducted currently
• mine exploration & development costs deducted currently.
• dividends-received deduction

Question 7

These transactions REDUCE the amount of E&P:

Answer 7

• corp. federal income taxes
• life ins. policy premiums on a corp. officer
• excess charitable contribution (over 10% limit)
• expenses relating to tax-exempt income
• excess of cpaital losses over capital gains
• corporate dividends & other distributions

Question 8

A nondividend distribution is not taxable to a SH until his basis in stock _-

Answer 8

is fully recovered. It’s considered to be a return of capital. Excess is treated as a gain from the sale of ppt and is taxable as capital gain.

Question 9

Form 5452 Corporate Report of Nondividend Distributions

Answer 9

how corp. reports nondividend distributions to IRS

Question 10

Stock rights or stock options maybe be distributed by a corp. to some or all of its SHs to allow them to __

Answer 10

purchases additional shares at a set price. Generally tax-free to SHs and not deductible by the corp.

Question 11

A “Constructive distribution” may occur when a corp. confers a benefit upon a SH. A transaction may be initially __

Answer 11

recorded by the corp. as an expense, but the IRS re-categorizes it. That makes it nondeductible to the corp. and taxable to the SH.

Question 12

Examples of “Constructive distribution” that are taxable to SH’s are:

Answer 12

• unreasonable compensation
• unreasonable rents
• cancellation of a SH’s debt
• ppt transfers for less than FMV
• below market or interest-free loans

Question 13

Property distribution by corp. to SH is treated as a sale, and the C or S corp. recognizes gain if the __

Answer 13

FMV of ppt is more than its adjusted basis. Corp. may have to treat all or portion of the gain as ordinary income if there is depreciation recapture.

Question 14

A stock redemption occurs when a corp. buys back its own stock from a SH __

Answer 14

in exchange for cash or ppt.

Question 15

SH must treat amount realized on a stock redemption as either a __

Answer 15

dividend or sale of stock.

Question 16

A corporate dissolution or liquidation must be reported on Form 966 Corporate Dissolution or Liquidation within __

Answer 16

30 days after the resolution is adopted to dissolve the corp. or liquidate any of its stock. Not required by nonprofits.

Question 17

Stock distributions (of stock and stock rights) are generally __

Answer 17

not taxable to SHs and not deductible by the corp.

Question 18

Examples of corp. distributions to shareholders:

Answer 18

• ordinary dividends
• capital gain distributions
• constructive distributions to an employee-shareholder

Question 19

If corp. distributes/sells ppt to a SH, the FMV is considered to be __

Answer 19

the greater of the ppt’s actual FMV or the amount of liability the SH assumes. EX:
Greater of Liability or FMV on ppt
- corp. adj basis = gain on sale to corp.