Ch.18 – Test Bank Docx – Corporate Taxation Nonliquidating

Taxation of Individuals and Business Entities, 11e (Spilker)

Chapter 18 Corporate Taxation: Nonliquidating Distributions

1) The "double taxation" of corporate income refers to the taxation of corporate income at both the entity level and the shareholder level.

2) A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes.

3) A corporation's "E&P" account is equal to the company's "retained earnings" account on its balance sheet.

4) A distribution from a corporation to a shareholder will only be treated as a dividend for tax purposes if the distribution is paid out of current or accumulated E&P.

5) Green Corporation has current E&P of $100,000 and a deficit in accumulated E&P of ($200,000). A $50,000 distribution from Green to its sole shareholder will not be treated as a dividend because total E&P is a deficit ($100,000).

6) Green Corporation has a deficit in current E&P of ($100,000) and positive accumulated E&P of $250,000. A $50,000 distribution from Green to its sole shareholder will be treated as a dividend.

7) The term "E&P" is well-defined in the Internal Revenue Code.

8) Only taxable income and deductible expenses are included in the computation of current E&P.

9) Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that is carried forward to 20X4. However, Cedar will deduct the net capital loss in the computation of current E&P for 20X3.

10) Terrapin Corporation incurs federal income taxes of $250,000 in 20X3. Terrapin deducts the federal income taxes in computing its current E&P for 20X3.

11) Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Assuming sufficient E&P, the amount of dividend reported by the shareholder is $200,000.

12) Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of $150,000 on the distribution regardless of whether its E&P is positive or negative.

13) Evergreen Corporation distributes land with a fair market value of $50,000 to its sole shareholder. Evergreen's tax basis in the land is $200,000. Evergreen will deduct a tax loss of $150,000 on the distribution regardless of whether its E&P is positive or negative.

14) Biggain Corporation distributes land with a fair market value of $220,000 to its sole shareholder. Biggain's tax basis in the land is $115,000. Biggain will not be taxed on a gain on the distribution if it has a deficit of ($250,000) in E&P.

15) This year the shareholders in Lucky Corporation can choose between receiving an additional 100 shares of stock or cash of $100. Lucky's shareholders will be taxed on the distribution if Lucky has sufficient E&P.

16) Stock distributions are always tax-free to the recipient shareholder.

17) The recipient of a tax-free stock distribution will have a zero tax basis in the stock.

18) The recipient of a taxable stock distribution will have a tax basis in the stock equal to the fair market value of the stock received.

19) A stock redemption is always treated as a sale or exchange for tax purposes.

20) Tammy owns 60 percent of the stock of Huron Corporation. Unrelated individuals own the remaining 40 percent. For a stock redemption of a portion of Tammy's shares to be treated as an exchange under the "substantially disproportionate" rule, the redemption must reduce Tammy's stock ownership in Huron Corporation below 48 percent.

21) Siblings are considered "family" under the stock attribution rules that apply to stock redemptions.

22) Diego owns 30 percent of Azul Corporation. Azul Corporation owns 50 percent of Verde Corporation. Under the attribution rules applying to stock redemptions, Diego is treated as owning 15 percent of Verde Corporation.

23) The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

24) Battle Corporation redeems 20 percent of its stock for $100,000 in a stock redemption that is treated as an exchange by the shareholders. Battle's E&P at the date of the redemption is $200,000. Battle must reduce its E&P by $100,000 because of the redemption.

25) A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

26) Which statement best describes the concept of the "double taxation" of corporation income?

A) Corporate income is subject to two levels of taxation: the regular tax and excess profits tax.

B) Corporate income is taxed twice at the corporate level: first when earned and then a second time if appreciated property is distributed to a shareholder.

C) Corporate income is taxed when earned by a C corporation and then a second time at the shareholder level when distributed as a dividend.

D) Corporate income is subject to two levels of taxation: at the federal level and a second time at the state level.

27) Which of the following forms of earnings distributions would not be subject to double taxation at the corporate and shareholder level?

A) Dividend.

B) Stock redemption.

C) Partial liquidation.

D) Compensation paid to a shareholder/employee of the corporation.

28) Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

A) The distribution is a dividend to the extent of the corporation's E&P, then a return of capital, and finally gain from sale of stock.

B) The distribution is a return of capital, then a dividend to the extent of the corporation's E&P, and finally gain from sale of stock.

C) The distribution is a return of capital, then gain from sale of stock, and finally a dividend to the extent of the corporation's E&P.

D) The shareholder can elect to treat the distribution as either a dividend to the extent of the corporation's E&P or a return of capital, followed by gain from sale of stock.

29) Which of the following statements best describes current E&P?

A) Current E&P is another name for a corporation's retained earnings on its balance sheet.

B) Current E&P is a precisely defined tax term in the Internal Revenue Code and represents a corporation's economic income.

C) Current E&P is an ill-defined tax concept in the Internal Revenue Code and represents a corporation's current-year economic income.

D) Current E&P is an ill-defined tax concept.

30) Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

A) A distribution will only be a dividend if total E&P (current plus accumulated) is positive at the time of the distribution.

B) A distribution can never be a dividend if current E&P is negative.

C) At a minimum, some portion of the distribution will be a dividend if current E&P for the year is positive, even if accumulated E&P is negative.

D) A distribution will never be a dividend if current E&P for the year is negative, even if accumulated E&P is positive.

31) A calendar-year corporation has positive current E&P of $500 and a deficit in accumulated E&P of ($1,200). The corporation makes a $400 distribution to its sole shareholder. Which of the following statements is true?

A) The distribution will not be a dividend because total E&P is a deficit.

B) The distribution may be a dividend, depending on whether total E&P at the date of the distribution is positive.

C) The distribution will be a dividend because current E&P is positive and exceeds the distribution.

D) A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in E&P.

32) A calendar-year corporation has deficit in current E&P of ($500) and accumulated positive E&P of $1,000. The corporation makes a $600 distribution to its sole shareholder. Which of the following statements is true?

A) $500 of the distribution will be a dividend because total E&P is $500.

B) $0 of the distribution will be a dividend because current E&P is a deficit.

C) $600 of the distribution will be a dividend because accumulated E&P is $1,000.

D) Up to $600 of the distribution could be a dividend depending on the balance in accumulated E&P on the date of the distribution.

33) Which of these items is not an adjustment to taxable income or net loss to compute current E&P?

A) Dividends received deduction.

B) Tax-exempt income.

C) Net capital loss carryforward utilized in the current year from the prior-year tax return.

D) Refund of prior-year taxes for an accrual-method taxpayer.

34) Grand River Corporation reported taxable income of $500,000 in 20X3 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meals and entertainment expense of $2,000, tax-exempt income of $1,000, and deferred gain on a current-year transaction treated as an installment sale of $25,000. The corporation's current E&P for 20X3 would be:

A) $524,000.

B) $500,000.

C) $354,000.

D) $331,000.

35) Au Sable Corporation reported taxable income of $800,000 in 20X3 and paid federal income taxes of $272,000. Not included in the computation was a disallowed penalty of $25,000, life insurance proceeds of $100,000, and a federal income tax refund from 20X2 of $50,000. Au Sable is an accrual-basis taxpayer. The corporation's current E&P for 20X3 would be:

A) $875,000.

B) $653,000.

C) $603,000.

D) $553,000.

36) Oakland Corporation reported a net operating loss of $500,000 in 20X3 and elected to carry the loss forward to 20X4. Not included in the computation was a disallowed meals and entertainment expense of $20,000, tax-exempt income of $10,000, and deferred gain on a current-year transaction treated as an installment sale of $250,000. The corporation's current E&P for 20X3 would be:

A) ($500,000).

B) ($720,000).

C) ($510,000).

D) ($260,000).

37) Packard Corporation reported taxable income of $1,000,000 in 20X3 and paid federal income taxes of $340,000. Included in the taxable income computation was a dividends received deduction of $5,000, a net capital loss carryover from 20X2 of $10,000 utilized in 20X3, and gain of $50,000 recognized on the collection of cash from an installment sale that took place in 20X1. The corporation's current E&P for 20X3 would be:

A) $1,015,000.

B) $965,000.

C) $675,000.

D) $625,000.

38) Abbot Corporation reported a net operating loss of $400,000 in 20X3, which the corporation elected to carry forward to 20X4. Included in the computation of the taxable loss was regular depreciation of $100,000 (E&P depreciation is $40,000), first-year expensing under §179 of $50,000, and a dividends received deduction of $10,000. The corporation's current E&P for 20X3 would be:

A) ($330,000).

B) ($290,000).

C) ($400,000).

D) ($490,000).

39) Madison Corporation reported taxable income of $400,000 in 20X3 and accrued federal income taxes of $136,000. Included in the computation of taxable income was regular depreciation of $200,000 (E&P depreciation is $60,000) and a net capital loss carryover of $20,000 from 20X2 utilized in 20X3. The corporation's current E&P for 20X3 would be:

A) $424,000.

B) $404,000.

C) $380,000.

D) $344,000.

40) Greenwich Corporation reported a net operating loss of $800,000 in 20X3, which the corporation elected to carry forward to 20X4. The computation of the loss did not include a disallowed fine of $50,000, life insurance proceeds of $500,000, and a current-year charitable contribution of $10,000 that will be carried forward to 20X4. The corporation's current E&P for 20X3 would be:

A) ($250,000).

B) ($260,000).

C) ($300,000).

D) ($360,000).

41) Bruin Company reports current E&P of $200,000 in 20X3 and accumulated E&P at the beginning of the year of $100,000. Bruin distributed $400,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3?

A) $400,000.

B) $300,000.

C) $200,000.

D) $100,000.

42) Aztec Company reports current E&P of $200,000 in 20X3 and a deficit of ($100,000) in accumulated E&P at the beginning of the year. Aztec distributed $300,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3?

A) $300,000.

B) $200,000.

C) $100,000.

D) $0.

43) Inca Company reports a deficit in current E&P of ($100,000) in 20X3 and accumulated E&P at the beginning of the year of $200,000. Inca distributed $300,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3?

A) $0.

B) $100,000.

C) $200,000.

D) $300,000.

44) Wildcat Corporation reports a deficit in current E&P of ($200,000) in 20X3 and accumulated E&P at the beginning of the year of $100,000. Wildcat distributed $300,000 to its sole shareholder on December 31, 20X3. How much of the distribution is treated as a dividend in 20X3?

A) $0.

B) $100,000.

C) $200,000.

D) $300,000.

45) Beaver Company reports current E&P of $100,000 in 20X3 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in 20X3?

A) $400,000 dividend.

B) $100,000 dividend, $200,000 tax-free return of basis, and $100,000 capital gain.

C) $200,000 dividend and $200,000 tax-free return of basis.

D) $300,000 dividend and $100,000 tax-free return of basis.

46) Longhorn Company reports current E&P of $100,000 in 20X3 and a deficit of ($200,000) in accumulated E&P at the beginning of the year. Longhorn distributed $300,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in his stock in Longhorn is $100,000. How is the distribution treated by the shareholder in 20X3?

A) $300,000 dividend.

B) $100,000 dividend, $100,000 tax-free return of basis, and $100,000 capital gain.

C) $100,000 dividend and $200,000 tax-free return of basis.

D) $0 dividend, $100,000 tax-free return of basis, and $200,000 capital gain.

47) Husker Corporation reports a deficit in current E&P of ($200,000) in 20X3 and accumulated E&P at the beginning of the year of $300,000. Husker distributed $200,000 to its sole shareholder on December 31, 20X3. The shareholder's tax basis in her stock in Husker is $50,000. How is the distribution treated by the shareholder in 20X3?

A) $200,000 dividend.

B) $100,000 dividend, $50,000 tax-free return of basis, and $50,000 capital gain.

C) $100,000 dividend and $100,000 tax-free return of basis.

D) $0 dividend, $50,000 tax-free return of basis, and $150,000 capital gain.

48) Tar Heel Corporation had current and accumulated E&P of $500,000 at December 31 20X3. On December 31, the company made a distribution of land to its sole shareholder, William Roy. The land's fair market value was $100,000 and its tax and E&P basis to Tar Heel was $25,000. William assumed a mortgage attached to the land of $10,000. The tax consequences of the distribution to William in 20X3 would be:

A) $100,000 dividend and a tax basis in the land of $100,000.

B) $100,000 dividend and a tax basis in the land of $90,000.

C) Dividend of $90,000 and a tax basis in the land of $100,000.

D) Dividend of $90,000 and a tax basis in the land of $90,000.

49) Cavalier Corporation had current and accumulated E&P of $500,000 at December 31 20X3. On December 31, the company made a distribution of land to its sole shareholder, Tom Jefferson. The land's fair market value was $200,000 and its tax and E&P basis to Cavalier was $50,000. The tax consequences of the distribution to Cavalier in 20X3 would be:

A) No gain recognized and a reduction in E&P of $200,000.

B) $150,000 gain recognized and a reduction in E&P of $200,000.

C) $150,000 gain recognized and a reduction in E&P of $50,000.

D) No gain recognized and a reduction in E&P of $50,000.

50) Montclair Corporation had current and accumulated E&P of $500,000 at December 31, 20X3. On December 31, the company made a distribution of land to its sole shareholder, Molly Pitcher. The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000. Molly assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Montclair in 20X3 would be:

A) No gain recognized and a reduction in E&P of $200,000.

B) $150,000 gain recognized and a reduction in E&P of $200,000.

C) $150,000 gain recognized and a reduction in E&P of $175,000.

D) No gain recognized and a reduction in E&P of $175,000.

51) Catamount Company had current and accumulated E&P of $500,000 at December 31, 20X3. On December 31, the company made a distribution of land to its sole shareholder, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in 20X3 would be:

A) No loss recognized and a reduction in E&P of $250,000.

B) $50,000 loss recognized and a reduction in E&P of $250,000.

C) $50,000 loss recognized and a reduction in E&P of $150,000.

D) No loss recognized and a reduction in E&P of $200,000.

52) Paladin Corporation had current and accumulated E&P of $500,000 at December 31, 20X3. On December 31, the company made a distribution of land to its sole shareholder, Maria Mendez. The land's fair market value was $200,000 and its tax and E&P basis to Paladin was $250,000. Maria assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Paladin in 20X3 would be:

A) No loss recognized and a reduction in E&P of $200,000.

B) $50,000 loss recognized and a reduction in E&P of $200,000.

C) $50,000 loss recognized and a reduction in E&P of $225,000.

D) No loss recognized and a reduction in E&P of $225,000.

53) This year Truckit reported taxable income of $160,000 and received $20,000 of municipal interest. Truckit paid $55,000 in entertainment expenses and $15,000 in fines and penalties. Truckit had $50,000 of accumulated E&P at the beginning of the year. What is Truckit's current E&P?

A) $180,000.

B) $142,200.

C) $110,000.

D) $76,400.

54) Which of the following are subtractions from taxable income in computing current E&P?

A) Federal income taxes paid.

B) Current charitable contributions in excess of 10 percent limitation.

C) Current-year net capital loss.

D) All of the choices are subtractions from taxable income in computing current E&P.

55) Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

A) Dividends received deduction.

B) Installment gain recognized in current year related to a sale in a prior year.

C) Gain on sale of depreciable assets with higher E&P basis.

D) Section 179 expense.

56) Which of the following stock distributions would be tax-free to the shareholder?

A) A 2-for-1 stock split to all holders of common stock.

B) A stock distribution where the shareholder could choose between cash and stock.

C) A stock distribution to all holders of preferred stock.

D) A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder.

57) El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, 20X3. Shareholders will receive one share of El Toro stock for each two shares of stock they already own. Raoul owns 300 shares of El Toro stock, with a tax basis of $60 per share. The fair market value of the El Toro stock was $100 per share on June 30, 20X3. What are the tax consequences of the stock distribution to Raoul?

A) $0 dividend income and a tax basis in the new stock of $100 per share.

B) $0 dividend income and a tax basis in the new stock of $60 per share.

C) $0 dividend income and a tax basis in the new stock of $40 per share.

D) $15,000 dividend and a tax basis in the new stock of $100 per share.

58) Wonder Corporation declared a common stock distribution to all shareholders of record on September 30, 20X3. Shareholders will receive three shares of Wonder stock for each five shares of stock they already own. Diana owns 300 shares of Wonder stock with a tax basis of $90 per share (a total basis of $27,000). The fair market value of the Wonder stock was $180 per share on September 30, 20X3. What are the tax consequences of the stock distribution to Diana?

A) $0 dividend income and a tax basis in the new stock of $180 per share.

B) $0 dividend income and a tax basis in the new stock of $67.50 per share.

C) $0 dividend income and a tax basis in the new stock of $56.25 per share.

D) $10,800 dividend and a tax basis in the new stock of $180 per share.

59) Which of the following individuals is not considered "family" for purposes of applying the stock attribution rules to a stock redemption?

A) Parents.

B) Grandchildren.

C) Grandparents.

D) Spouse.

60) Which of the following statements is true?

A) All stock redemptions are treated as exchanges for tax purposes.

B) A stock redemption not treated as an exchange will automatically be treated as a taxable dividend.

C) All stock redemptions are treated as dividends if received by an individual.

D) A stock redemption is treated as an exchange only if it meets one of three stock ownership tests described in the Internal Revenue Code.

61) Sam owns 70 percent of the stock of Club Corporation. Unrelated individuals own the remaining 30 percent. For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption?

A) Any percentage less than 70 percent.

B) Any percentage less than 56 percent.

C) Any percentage less than 50 percent.

D) All stock redemptions involving individuals are treated as exchanges.

62) Sara owns 60 percent of the stock of Lea Corporation. Unrelated individuals own the remaining 40 percent. For a stock redemption of Sara's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Lea stock must Sara own after the redemption?

A) Any percentage less than 60 percent.

B) Any percentage less than 50 percent.

C) Any percentage less than 48 percent.

D) All stock redemptions involving individuals are treated as exchanges.

63) Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 20X3. Pam's income tax basis in each share is $500. Comet has total E&P of $250,000. What are the tax consequences to Pam because of the stock redemption?

A) $25,000 capital gain and a tax basis in each of her remaining shares of $500.

B) $25,000 capital gain and a tax basis in each of her remaining shares of $100.

C) $50,000 dividend and a tax basis in each of her remaining shares of $100.

D) $50,000 dividend and a tax basis in each of her remaining shares of $50.

64) Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Comet redeems 50 of Pam's shares on December 31, 20X3, for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes. Comet has total E&P of $250,000 on December 31, 20X3. What are the tax consequences to Comet because of the stock redemption?

A) No reduction in E&P because of the exchange.

B) A reduction of $50,000 in E&P because of the exchange.

C) A reduction of $62,500 in E&P because of the exchange.

D) A reduction of $125,000 in E&P because of the exchange.

65) Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Comet redeems 50 of Pam's shares on December 31, 20X3, for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes. Comet has total E&P of $160,000 on December 31, 20X3. What are the tax consequences to Comet because of the stock redemption?

A) No reduction in E&P because of the exchange.

B) A reduction of $50,000 in E&P because of the exchange.

C) A reduction of $40,000 in E&P because of the exchange.

D) A reduction of $80,000 in E&P because of the exchange.

66) Viking Corporation is owned equally by Sven and his wife, Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock in the company on December 31, 20X3. Viking paid Sven $2,000 per share. His income tax basis in each share is $1,000. Viking has total E&P of $500,000. What are the tax consequences to Sven because of the stock redemption?

A) $75,000 capital gain and a tax basis in each of his remaining shares of $1,000.

B) $75,000 capital gain and a tax basis in each of his remaining shares of $2,000.

C) $150,000 dividend and a tax basis in each of his remaining shares of $1,000.

D) $150,000 dividend and a tax basis in each of his remaining shares of $4,000.

67) Viking Corporation is owned equally by Sven and his wife, Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock for $2,000 per share on December 31, 20X3. Viking has total E&P of $500,000. What are the tax consequences to Viking because of the stock redemption?

A) No reduction in E&P because of the exchange.

B) A reduction of $150,000 in E&P because of the exchange.

C) A reduction of $187,500 in E&P because of the exchange.

D) A reduction of $375,000 in E&P because of the exchange.

68) Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

A) 100.

B) 200.

C) 300.

D) 400.

69) Panda Company is owned equally by Min, her husband, Bin, her sister Xiao, and her grandson, Han, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Panda stock is Min deemed to own?

A) 100.

B) 200.

C) 300.

D) 400.

70) Beltway Company is owned equally by George, his brother Thomas, and a partnership owned 50 percent by George and his father, Abe. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Beltway stock is George deemed to own?

A) 100.

B) 150.

C) 200.

D) 300.

71) Lansing Company is owned equally by Jennifer, her husband, Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is Jennifer deemed to own?

A) 100.

B) 200.

C) 250.

D) 300.

72) Lansing Company is owned equally by Jennifer, her husband, Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is DeWitt Corporation deemed to own?

A) 100.

B) 200.

C) 250.

D) 300.

73) Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

A) A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange for tax purposes.

B) A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend for tax purposes.

C) A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange if Tammy waives the family attribution rules and files a "triple i" agreement with the IRS.

D) A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend to the extent that the redemption exceeds Tammy's tax basis in the redeemed shares.

74) General Inertia Corporation made a distribution of $50,000 to Henry Tiara in partial liquidation of the company on December 31, 20X3. Henry owns 500 shares (50 percent) of General Inertia. The distribution was in exchange for 250 shares of Henry's stock in the company. After the partial liquidation, Henry continued to own 50 percent of the remaining stock in General Inertia. At the time of the distribution, the shares had a fair market value of $200 per share. Henry's income tax basis in the shares was $100 per share. General Inertia had total E&P of $800,000 at the time of the distribution. What are the tax consequences to Henry because of the transaction?

A) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $100 per share.

B) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $100 per share.

C) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $200 per share.

D) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $200 per share.

75) General Inertia Corporation made a pro rata distribution of $50,000 to Tiara, Inc. in partial liquidation of the company on December 31, 20X3. Tiara, Inc. owns 500 shares (50 percent) of General Inertia. The distribution was in exchange for 250 shares of Tiara's stock in the company. After the partial liquidation, Tiara continued to own 50 percent of the remaining stock in General Inertia. At the time of the distribution, the shares had a fair market value of $200 per share. Tiara's income tax basis in the shares was $100 per share. General Inertia had total E&P of $800,000 at the time of the distribution. What amount of dividend or capital gain does Tiara recognize because of the transaction?

A) Tiara does not recognize any dividend income or capital gain.

B) Tiara recognizes capital gain of $50,000.

C) Tiara recognizes dividend income of $50,000.

D) Tiara recognizes capital gain of $25,000.

76) Superior Corporation reported taxable income of $1,000,000 in 20X3. Superior paid a dividend of $100,000 to its sole shareholder, Mary Yooper. Superior Corporation is subject to a flat-rate tax of 21 percent. The dividend meets the requirements to be a "qualified dividend," and Mary is subject to a tax rate of 15 percent on the dividend. What is the total federal income tax imposed on the corporate income earned by Superior, including taxes on the amount distributed to Mary as a dividend?

77) Erie Corporation reported taxable income of $2,200,000 in 20X3 before any deduction for any payment to its sole shareholder and employee, LaBron Cleveland. Erie paid a bonus of $200,000 to LaBron at year-end. Erie Corporation is subject to a flat-rate tax of 21 percent. The bonus meets the requirements to be "reasonable" and is therefore deductible by Erie. LaBron is subject to a marginal tax rate of 35 percent on the bonus. What is the total federal income tax imposed on the corporate income earned by Erie and paid to LaBron as a bonus?

78) St. Clair Company reports positive current E&P of $500,000 in 20X3 and positive accumulated E&P at the beginning of the year of $400,000. St. Clair Company distributed $600,000 to its sole shareholder, Danielle Brush, on December 31, 20X3. Danielle's tax basis in her St. Clair stock is $120,000. How much of the $600,000 distribution is treated as a dividend to Danielle, and what is her basis in St. Clair stock after the distribution?

79) Austin Company reports positive current E&P of $200,000 and a deficit in accumulated E&P of ($300,000). Austin distributed $250,000 to its sole shareholder, Betsy Bevo, on December 31, 20X3. Betsy's tax basis in her stock is $125,000. How much of the $250,000 distribution is treated as a dividend to Betsy, and what is her tax basis in Austin stock after the distribution?

80) Elk Company reports a deficit in current E&P of ($200,000) and positive accumulated E&P of $300,000. Elk distributed $200,000 to its sole shareholder, Barney Rubble, on December 31, 20X3. Barney's tax basis in his Elk stock is $75,000. What is the tax treatment of the distribution to Barney, and what is his tax basis in Elk stock after the distribution?

81) Houghton Company reports a deficit in current E&P of ($500,000) and a deficit in accumulated E&P of ($800,000). Houghton distributed $100,000 to its sole shareholder, Blossom Applegate, on December 31, 20X3. Blossom's tax basis in her Houghton stock is $50,000. What is the tax treatment of the distribution to Blossom, and what is her tax basis in Houghton stock after the distribution?

82) Loon, Inc. reported taxable income of $600,000 in 20X3 and paid federal income taxes of $202,000. Not included in the company's computation of taxable income is tax-exempt interest of $30,000, disallowed meals and entertainment expenses of $15,000, and disallowed expenses related to the tax-exempt income of $4,000. Loon deducted depreciation of $200,000 on its tax return. Under the alternative (E&P) depreciation method, the deduction would have been $80,000. Compute the company's current E&P for 20X3.

83) Orchard, Inc. reported taxable income of $800,000 in 20X3 and paid federal income taxes of $272,000. Included in the company's computation of taxable income is gain from sale of a depreciable asset of $200,000. The income tax basis of the asset was $50,000. The E&P basis of the asset using the alternative depreciation system was $75,000. Compute the company's current E&P for 20X3.

84) Walloon, Inc. reported taxable income of $1,000,000 in 20X3 and paid federal income taxes of $210,000. The company reported a capital gain from sale of investments of $150,000, which was partially offset by a $40,000 net capital loss carryover from 20X2, resulting in a net capital gain of $110,000 included in taxable income. Compute the company's current E&P for 20X3.

85) Otter Corporation reported taxable income of $400,000 from operations for 20X3. The company paid federal income taxes of $136,000 on this taxable income. During the year, the company made a distribution of land to its sole shareholder, Emmet Jugg. The land's fair market value was $50,000 and its tax and E&P basis to Otter was $30,000. Emmet assumed a mortgage attached to the land of $10,000. The company had accumulated E&P of $900,000 at the beginning of the year. Compute Otter's total taxable income and federal income tax paid because of the distribution (assume a tax rate of 21 percent). Using your solution, compute Otter's current E&P for 20X3.

86) Ozark Corporation reported taxable income of $500,000 from operations for 20X3. During the year, the company made a distribution of land to its sole shareholder, Marcus Twain. The land's fair market value was $100,000 and its tax and E&P basis to Ozark was $125,000. Marcus assumed a mortgage attached to the land of $25,000. Ozark's tax rate is 21 percent. The company had accumulated E&P of $850,000 at the beginning of the year. Compute Ozark's total taxable income and federal income tax paid because of the distribution. Using your solution, compute Ozark's accumulated E&P at January 1, 20X4.

87) Sherburne Corporation reported current E&P for 20X3 of $500,000. During the year, the company made a distribution of land to its sole shareholder, Ted Bozeman. The land's fair market value was $150,000 and its tax and E&P basis to Sherburne was $100,000. Ted assumed a mortgage attached to the land of $25,000. What amount of dividend income does Ted report because of the distribution, and what is Ted's income tax basis in the land received from Sherburne?

88) Sunapee Corporation reported taxable income of $700,000 from operations for 20X3. During the year, the company made a distribution of land to its sole shareholder, Jean McCarthy. The land's fair market value was $125,000 and its tax and E&P basis to Sunapee was $75,000. Jean assumed a mortgage attached to the land of $25,000. Sunapee's tax rate is 21 percent. Compute Sunapee's total taxable income and federal income tax paid because of the distribution. Using your solution, compute Sunapee's current E&P for 20X3.

89) Tappan declared a 100 percent stock distribution to all shareholders of record on May 2 of this year. Prior to the distribution, Tappan reported current E&P of $60,000 and accumulated E&P of $30,000. Prior to the split, Barb owned 100 shares of Tappan stock, with a market value of $150 per share and a tax basis of $100 per share. After the distribution, Barb owned 200 shares of Tappan, with a market value of $80 per share. What is the per-share tax basis of Barb's additional 100 shares?

90) Townsend Corporation declared a 1-for-1 stock split to all common stock shareholders of record on December 31, 20X3. Townsend reported current E&P of $400,000 and accumulated E&P of $1,000,000. The total fair market value of the stock distributed was $500,000. Regina Williams owned 1,000 shares of Townsend common stock, with a tax basis of $200 per share ($200,000 total). The fair market value of the common stock was $300 per share on December 31, 20X3. What is Regina's income tax basis per share in the new and existing common stock she owns in Townsend, assuming the distribution is tax-free?

91) Sweetwater Corporation declared a stock distribution to all common stock shareholders of record on December 31, 20X3. Shareholders will receive one share of Sweetwater common stock for each five shares of common stock they already own. Pierre Dorgan owns 500 shares of Sweetwater common stock, with a tax basis of $150 per share. The fair market value of the Sweetwater common stock was $90 per share on December 31. What is Pierre's income tax basis per share in his new and existing common stock in Sweetwater, assuming the distribution is nontaxable?

92) Buckeye Company is owned equally by James and his brother Terrelle, each of whom own 500 shares in the company. Terrelle wants to reduce his ownership in the company, and it was decided that the company will redeem 200 of his shares for $5,000 per share on December 31, 20X3. Terrelle's income tax basis in each share is $1,000. Buckeye has current E&P of $10,000,000 and accumulated E&P of $20,000,000. What is the amount and character (capital gain or dividend) recognized by Terrelle because of the stock redemption?

93) Pine Creek Company is owned equally by Bob and his sister Samantha, each of whom own 1,000 shares in the company. On December 31, 20X3, Pine Creek redeemed 200 of Samantha's shares for $5,000,000 in a transaction treated as an exchange by Samantha. Pine Creek has current E&P of $10,000,000 and accumulated E&P of $30,000,000 (computed without regard to the stock redemption). Assuming Pine Creek did not make any dividend distributions during 20X3, by what amount does the company reduce its E&P because of the redemption?

94) Goose Company is owned equally by Val and her sister Eugenia, each of whom own 500 shares in the company. Val wants to reduce her ownership in the company and have the transaction treated as an exchange for tax purposes. Determine the minimum amount of stock that Goose must redeem from Val for her to treat the redemption as being "substantially disproportionate with respect to the shareholder" and receive exchange treatment.

95) Crystal, Inc. is owned equally by John and his wife, Arlene, each of whom own 500 shares in the company. Arlene wants to reduce her ownership in the company, and it was decided that the company will redeem 200 of her shares for $5,000 per share on December 31, 20X3. Arlene's income tax basis in each share is $1,000. Crystal has current E&P of $1,000,000 and accumulated E&P of $3,000,000. What is the amount and character (capital gain or dividend) recognized by Arlene as a result of the stock redemption, assuming only the "substantially disproportionate with respect to the shareholder" test is applied?

96) Crescent Corporation is owned equally by George and his daughter Olympia, each of whom own 100 shares in the company. George wants to retire from the company, and it was decided that the company will redeem all 100 of his shares for $10,000 per share on December 31, 20X3. George's income tax basis in each share is $2,000. Crescent has current E&P of $1,000,000 and accumulated E&P of $5,000,000. What must George do to ensure that the redemption will be treated as an exchange?

97) Tiger Corporation, a privately held company, has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows:

How many shares of stock is Mark deemed to own under the family attribution rules in a stock redemption?

98) Geneva Corporation, a privately held company, has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows:

Madison has a 20 percent interest in the partnership. The remaining 80 percent is owned by unrelated individuals. Madison owns 40 percent of Packer Corporation. The other 60 percent is owned by her father.

How many shares of stock is Madison deemed to own under the family attribution rules in a stock redemption?

99) Half Moon Corporation made a distribution of $300,000 to Arnold Swartz in partial liquidation of the company on December 31, 20X3. Arnold owns 100 percent of Half Moon Corporation (1,200 shares). The distribution was in exchange for 50 percent of Arnold's stock in the company (600 shares). At the time of the distribution, the shares had a fair market value of $500 per share. Arnold's income tax basis in the shares was $250 per share. Half Moon had total E&P of $2,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Arnold as a result of the partial liquidation?

100) Yellowstone Corporation made a distribution of $300,000 to Cheney, Inc. in partial liquidation of the company on December 31, 20X3. Cheney, Inc. owns 50 percent of Yellowstone Corporation (1,000 shares). The other 50 percent is owned by an unrelated corporation. The distribution was in exchange for 50 percent of Cheney's stock in the company (500 shares). At the time of the distribution, the shares had a fair market value of $800 per share. Cheney's income tax basis in the shares was $500 per share. Yellowstone had total E&P of $5,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Cheney as a result of the partial liquidation?