TAX: Distributions from a Corporation

Question 1

How does a shareholder receive money out of the corporation?

Answer 1

Dividend

Question 2

What are the steps to contribute tax for dividends distributed through a corporation?

Answer 2

1) Dividend Income to the extent of shareholders E&P
2) Excess is tax-free to the extent of shareholders basis in the stock
3) Remaining distribution is taxed asa capital gain

Question 3

How do you determine the amount of dividend income to the shareholder if it is property that is distributed?

Answer 3

Amount distributed = FMV - Liabilities on property

Question 4

What does E&P measure?

Answer 4

Ability to pay a dividend

Question 5

How do you measure E&P?

Answer 5

Increased by all items of income, including tax-exempt income

Decreased for both deductible and nondeductible expenses and losses

Alternative depreciation (SL) must be used for E&P purposes

Question 6

When property is distributed, how does that impact E&P

Answer 6

Greater of FMV or AB

Less: The amount of any liability on the property

Question 7

If current E&P is negative, and accumulated is positive, how do you handle this?

Answer 7

NET

Question 8

If current E&P is positive, and negative for accumulated, how would you handle this?

Answer 8

Only current is dividend income

Question 9

Is there a gain that is recognized in a distribution?

Answer 9

Yes, BUT NOT LOSSES!!