Similarities and Distinctions in Tax Treatment Among Business Entities: Distributions

Question 1

a domestic personal holding company

Answer 1

must deduct federal income taxes and net long-term capital gain (less related federal income taxes) from taxable income to determine undistributed personal holding company income prior to the dividends-paid deduction

The end result is the undistributed personal holding company income should reflect the corporation’s ability to pay dividends

Question 2

When a partnership distributes property to a partner as a nonliquidating distribution

Answer 2

the partner takes a carryover basis in the property received

Question 3

advantage of a limited liability company over an S corporation

Answer 3

An S corporation recognizes a gain on the distribution of appreciated property to a shareholder. The transaction is treated as a “sale” of the property to the shareholder at fair market value (FMV)

Distributions from a limited liability company (LLC) are assigned a portion of adjusted basis of the LLC interest

Question 4

Nonliquidating distributions of a corporation

Answer 4

will reduce the retained earnings of the corporation and are taxable as a dividend to the shareholder if earnings and profits exist

The journal entry to record the distribution is generally a debit to Retained Earnings and a credit to the asset that is distributed.