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Chapter 18 - Corporate Taxation: Nonliquidating Distributions Chapter 18 Corporate Taxation: Nonliquidating Distributions True / False Questions 1. The "double taxation" of corporate income refers to the fact that corporate income is taxed at both the entity-level and the shareholder-level. True False 2. A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes. True False 3. A corporation's "earnings and profits" account is equal to the company's "retained earnings" account on its balance sheet. True False 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 earnings and profits. True False 5. Green Corporation has current earnings and profits of $100,000 and negative accumulated earnings and profits of $(200,000). A $50,000 distribution from Green to its sole shareholder will not be treated as a dividend because total earnings and profits is a negative $100,000. True False 6. Green Corporation has negative current earnings and profits of $100,000 and positive accumulated earnings and profits of $200,000. A $50,000 distribution from Green to its sole shareholder will be treated as a dividend because total earnings and profits is a positive $100,000. True False 18-1 Chapter 18 - Corporate Taxation: Nonliquidating Distributions 7. The term "earnings and profits" is well-defined in the Internal Revenue Code. True False 8. Only income and deductions included on a corporation's income tax return are included in the computation of current earnings and profits. True False 9. Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that cannot be deducted on its income tax return but must be carried forward to 20X4. Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3. True False 10. Terrapin Corporation incurs federal income taxes of $250,000 in 20X3. Terrapin deducts the federal income taxes in computing its current earnings and profits for 20X3. True False 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 earnings and profits, the amount of dividend reported by the shareholder is $200,000. True False 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 earnings and profits is positive or negative. True False 18-2 Chapter 18 - Corporate Taxation: Nonliquidating Distributions 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 report a loss of $150,000 on the distribution regardless of whether its earnings and profits is positive or ... View Full Document

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