M8 Entity/Owner Transactions

Question 1

Corporate Distributions. Distributions from corporations to shareholders are taxable to such shareholders if the distributions are classified as ?

Answer 1

Dividends

Question 2

Order of Distribution allocation and tax consequences to the shareholder (4)

Answer 2

1) Current E&P = Taxable dividend
2) Accumulated E&P = Taxable dividend
3) Return of capital (no E&P) = Tax free and REDUCE basis of common stock
4) Capital gain distribution (no E&P and no Basis) = taxable income as a capital gain

Question 3

How are multiple distributions in the same year treated?

Answer 3

*Pro-rata - current E&P is first allocated to each distribution on a pro-rata basis, THEN accumulated E&P is applied in chronological order beginning with the earliest distribution

Current E&P =
(Distribution #1 / Total Distributions) * Current E&P

Accumulated E&P = allocate remaining amount chronologically

Question 4

Tax consequences of a stock dividends

Answer 4

NOT TAXABLE

Question 5

When would a stock dividend be taxable - amount?

Answer 5

If shareholder has a choice of receiving cash or other property (regardless of what the taxpayer actually decides)

FMV (*TAXABLE = FMV)

Question 6

Stock dividend basis calculation/allocation

Answer 6

Basis of the old stock (purchase price) / # old + new shares

Question 7

General rule for the taxable amount for a corporation paying a dividend? What is the exception?

Answer 7

NOT TAXABLE

EXCEPTION = Property dividends

Question 8

Corporation paying dividend - taxable amount. What if appreciated property is distributed (FMV < adjusted basis)?

Answer 8

NO LOSS CAN BE RECOGNIZED

Question 9

Stock Redemption. If proportional, the taxable dividend (to the shareholder) is treated as what type of income?

Answer 9

ORDINARY

Question 10

Stock Redemption. If disproportional, the taxable dividend (to the shareholder) is treated as what type of income?

Answer 10

CAPITAL GAIN/LOSS

Question 11

Corporation Liquidation. If a corporation is liquidated, it is subject to what?

Answer 11

DOUBLE TAXATION

Question 12

Corporation Sells Assets and Distributes Cash to shareholders and/or Distributes Assets to Shareholders (no cash). Corporation recognizes (and calculation) ?

Answer 12

Gain/Loss on sale of the assets (Normal):

Sale price

Taxable gain/loss

Question 13

Corporation Sells Assets and Distributes Cash to shareholders and/or Distributes Assets to Shareholders (no cash). Shareholder recognizes (and calculation)?

Answer 13

Gain/Loss to the extent that cash exceeds adjusted basis of stock (scenario 1):
Proceeds

Taxable gain/loss

”” to the extent FMV of assets received exceeds adjusted basis of stock (SAME RESULT AS ABOVE)
FMV

Taxable gain/loss

Question 14

Reorganizations taxable or nontaxable?

Answer 14

NONTAXABLE

Question 15

Parent/sub liquidation tax consequences

Answer 15

NOT TAXABLE = NBV (shareholder basis stays same as original, would recognize a gain to extent he/she receives boot/loot)

Question 16

Worthless Stock: Section 1244 Stock (Small Business Stock). When corp’s stock becomes TOTALLY worthless, original shareholder can treat the loss as ___ instead of ___ up to what amount?

Answer 16

ORDINARY (instead of capital)

50,000

Question 17

Worthless Stock: Section 1244 Stock (Small Business Stock). Any loss in excess of the $50,000 (100,000 if MFJ) would be treated as what type of loss?

Answer 17

CAPITAL (up to $3,000 limited per the rules)

Question 18

Small Business Stock. Exclusion amount maximum and limited to 100% of the GREATER of (2)?

Answer 18

1) 10 times the taxpayer’s basis in the stock OR

2) $10 million ($5 million if MFS)

Question 19

Small Business Stock. Capital qualification

Answer 19

Less than $50 million as of date of stock issuance

Question 20

Small Business Stock. Any amount that exceeds the $10 million would be treated as what?

Answer 20

TAXABLE at regular rates