ExpertMedium1 markMultiple Choice
CPA · Question 53 · Area II: Entity Tax Compliance
A C Corporation has current year E&P of $50,000 and accumulated E&P of $20,000. It distributes land (Basis $10,000, FMV $40,000) to a shareholder. What is the amount of the dividend to the shareholder?
A C Corporation has current year E&P of $50,000 and accumulated E&P of $20,000. It distributes land (Basis $10,000, FMV $40,000) to a shareholder. What is the amount of the dividend to the shareholder?
Answer options:
A.
$10,000
B.
$40,000
C.
$30,000
D.
$70,000
How to approach this question
1. Corp recognizes gain on dist ($30k). 2. E&P increases by gain ($50k + $30k = $80k). 3. Dividend is FMV ($40k). 4. Check if E&P covers it (Yes).
Full Answer
B.$40,000✓ Correct
B
IRC §301(b). The amount distributed is the FMV ($40,000). Since E&P is sufficient (increased by the gain on distribution), the entire amount is a dividend.
Common mistakes
Using basis as dividend amount.
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