Topic 9 Distributions Flashcards
Shareholder Distributions
- ________: any distribution of property made by a corporation to its shareholders out of E&P
- ______ __ _______: distribution in excess of E&P, up to shareholder basis
- _______ ____: amount that exceeds shareholder basis
Dividend
Return of Capital
Capital Gain
Earnings & Profits
-corporation’s economic ________ available for ____________ to shareholders
- two separate E&P accounts are maintained:
- –_______: current year
- –___________: leftover from all prior years
-calculation of E&P starts with _______ income
earnings; distribution
current; accumulated
taxable
E&P Calculation
\_\_\_\_\_\_\_ Income \+\_\_\_\_\_\_\_\_\_\_ from Taxable Income \+Deductions allowed for \_\_\_ but not \_\_\_ - Deductions allowed for \_\_\_ but not \_\_\_ \+/- \_\_\_\_\_\_ \_\_\_\_\_\_\_\_ between Tax & E&P =Earnings & Profits
Taxable Exclusions Tax; E&P E&P; Tax timing differences
Exclusions from Taxable Income
- tax exempt ____ ________
- ____ ________ proceeds
- federal __ _______ (if cash-basis tp)
- increase in ____ _________ value of corporate-owned ____ ________ policy
bond interest
life insurance
tax refunds
cash surrender; life insurance
Deductions Allowed for Tax Purposes but Not for E&P
- _______ ________ deduction
- ___ deduction carrybacks and carryforwards
- ___ ______ ____ carryforwards
- __________ carryforwards
dividends received
NOL
net capital loss
contribution
Deductions Allowed for E&P Purposes but Not for Tax
- federal ______ _____ paid or accrued
- expenses of earning ___-______ income
- current-year __________ ______________ in excess of the 10% limitation
- ______________ premiums on life insurance policies
- current year net _______ ____
- penalties and ______
- nondeductible portion of _____ expense
- _____________ expenses
- disallowed ________ expenses, dues, and political contributions
- decrease in ____ _________ value of corporate-owned life insurance policy
income taxes tax-exempt charitable contributions nondeductible capital loss fines meal entertainment lobbying cash surrender
Timing Differences Due to Separate Accounting Methods for Taxable Income & E&P
- installment method: ___ deferred gain under installment method in year of sale and ________ recognized gain in subsequent years
- depreciation: compare depreciation (other than §179 expense) under regular tax rules for E&P depreciation (bonus depreciation is not allowed). ___ ____ difference if taxable income depreciation exceeds E&P depreciation. _______ differences if E&P depreciation exceeds taxable income depreciation for the year.
- §179 Expense: immediately deductible for taxable income purposes. Deductible over _ years for E&P purposes. ___ back in year of §179 expense but ________ in subsequent years.
- Inventory: if ____ is used for tax purposes, ____ must be used for E&P calculations.
- Gain or Loss on Sale of Depreciable Assets: ________ greater taxable gain (lesser taxable loss) due to lower asset basis for taxable income purposes than for E&P purposes. This is a reversal of the depreciation deduction adjustment.
- Long-term Contract: percentage completion method is required for E&P. Compare the income recognized under both methods. ___ ____ if more income under the completed contract method and ________ if more income under the percentage complete method year.
- Depletion: must use the cost depletion method for E&P purposes. If using percentage depletion for taxable income, ___ _____ the difference if percentage depletion exceeds cost depletion for the year. Otherwise ________ the the excess of cost depletion over percentage depletion for the year.
add; subtract
add back; subtract
5; add; subtract
LIFO; FIFO
subtract
add back; subtract
add back; subtract
Determining the Dividend
If the Balance in Current E&P at the Time of the Distribution is _________ AND the Balance in Accumulted E&P at the time of Distribution is _________ THEN distributions are a return of capital.
If the Balance in Current E&P at the Time of the Distribution is _________ AND the Balance in Accumulted E&P at the time of Distribution is _________ THEN distributions are dividend income to extent of accumulated E&P after netting against deficit in current E&P.
If the Balance in Current E&P at the Time of the Distribution is _________ AND the Balance in Accumulted E&P at the time of Distribution is _________ THEN distributions are divided income to extent of current E&P.
If the Balance in Current E&P at the Time of the Distribution is _________ AND the Balance in Accumulted E&P at the time of Distribution is _________ THEN distributions are dividend income to extent of current E&P and the balance of accumulated E&P.
Negative; Negative
Negative; Positive
Positive; Negative
Positive; Positive
Noncash Dividends
- amount received by shareholder = ???
- shareholder basis in noncash property is ___ as of date of ________
money received + FMV other property received - liabilities assumed by shareholder
FMV; distribution
Noncash Dividends - Corporation
- recognize ____ (not ____) to the extent ___ exceeds ___ _____
- if FMV is ____ than liabilities shareholder assumes, then ___ is the liability
- E&P is ________________ by:
- –_________ of noncash depreciated property
- – ___ of noncash appreciated property
- –______________ by shareholder on property
gain; loss; FMV; tax basis
less; FMV
reduced (but not below zero)
E&P basis
FMV
liabilities assumed
Stock Dividends
- __________ if prorata distribution of common stock; does not change ownership %
- _____ basis does not change, but ___ _____ basis changes as spread over more shares
- _______ if ownership % change OR have the option or actually receive other property in the distribution
nontaxable
overall basis; per share basis
taxable
Stock Redemptions
-corporation acquires stock from shareholder in exchange for ________
- treated as ________, unless meet one of the following, it is treated as a ____:
1) substantially ___________ redemption: - –shareholder does not control after (
property
dividend; sale disproportionate 50% 80% all equivalent §318; waived
§318 Attribution Rules
- ______ ___________: individuals treated as owning shares owned by spouse, children, grandchildren and parents
- _______ to Owners/Beneficiaries:
- –_____: own pro rata share of partnership stock holdings
- –____________: own pro rata share of estate/trust stock
- –_________: own pro rata share if they own at least 50% value of the corporation’s stock (family attribution applies)
- ________ __ _______: 100% of shares owned by owners to partnership, estate & trust, and to shareholders (but only if shareholder owns at least 50% value of corporation’s stock)
- If attribution applies, tax basis of redeemed stock is _____ to tax basis of shares still held
Family Attribution
Entities
Partners
Beneficiaries
Shareholders
Owners to Entities
added
Redemption Treated as Sale
- Shareholder:
- –gain is (always/never) recognized
- –loss (is/is not) recognized unless shareholder is a related person to the corporation;
- —–own more than __% of stock’s value
- —–attribution under §___(c) attribution rules
- Corporation:
- –(reduce/increase) current E&P for dividends (cash + FMV property adjusted for recognized gain/loss)
- –(reduce/increase) accumulated for % of stock redeemed (FMV of distributed property)
always
is
50%
§267
reduce
reduce
Partial Liquidation
-distribute _____ of subsidiary or ________ from sale of business
- may require _______ of shares or may be ___ ____ to all shareholders with no exchange;
- –treated as a sale for _________ shareholders
- –corporate shareholders determine their tax consequences using ___-___-____ ownership rules that apply to stock redemptions
stock; proceeds
exchange; pro rata
noncorporate
change-in-stock
