Chapter 18

A calendar-year corporation has deficit in current E&P of ($500) and positive accumulated 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 net E&P (current plus accumulated E&P) on the date of the distribution.

D) Up to $600 of the distribution could be a dividend depending on net E&P (current plus accumulated E&P) on the date of the distribution.

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 remediation C. Partial liquidation D. Compensation paid to a shareholder or employee of the corporation

D. Compensation paid to a shareholder or employee of the corporation

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

true

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. ⊚ true ⊚ false

true

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 corp 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 at a second time at the state level

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

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 adjusted tax basis D) Section 179 expense

A) Dividends received deduction

Which of the following statements best descirbes 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 a corporation's E&P, then a return of capital, and finally a gain from sale of stock B. The distrubtion is a return of capital, then a dividend to the extent of the corporation's E&P, and finally a 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

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

A corporation's "E&P" account is equal to the company's "retained earnings" account on its financial balance sheet. ⊚ true ⊚ false

false

A distribution of cash from a corporation to a shareholder will always result in a dividend for tax purposes. ⊚ true ⊚ false

false

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

false

Evergreen Corporation distributes land with a fair market value of $50,000 to its sole shareholder. Evergreen's adjusted 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. ⊚ true ⊚ false

false

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 at year-end will not be treated as a dividend because total E&P is a deficit ($100,000). ⊚ true ⊚ false

false

Only taxable income and deductible expenses are included in the computation of current E&P. ⊚ true ⊚ false

false

The term "E&P" is precisely defined in the Internal Revenue Code. ⊚ true ⊚ false

false

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. ⊚ true ⊚ false

true

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. ⊚ true ⊚ false

true

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 net 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 sccumulated E&P is positive.

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.

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 net E&P (current plus accumulated 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.

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

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.

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

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.

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

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

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

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 at year-end will be treated as a dividend. ⊚ true ⊚ false

true

The "double taxation" of corporate income refers to the taxation of corporate income at both the entity level and the shareholder level. ⊚ true ⊚ false

true

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's adjusted 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. ⊚ true ⊚ false

true