review_ex_4_fall_2010 - TAX 5015(Fall 2010 Chapter review...

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TAX 5015 (Fall 2010) – Chapter review exercise #4 Topic review: E&P and dividend distributions Due date: September 23, 2010 Name(s): Part 1: As of January 1, 2010, Knight Corporation had accumulated E&P of $155,000 and a $9,000 NOL carryforward from 2008. During 2010, Knight Corporation reported: Gross profit $1,000,000 Dividend income (> 20% owned corporation) 7,000 Cash dividends paid 27,000 Salary expense 850,000 Key-man life insurance premiums 3,500 Other expenses 33,000 Short-term capital loss 7,000 Charitable contributions 5,000 In June Knight Corporation distributed land with a fair value $95,000 (adjusted basis of $75,000) to George, its sole shareholder. George assumes a $63,000 liability on the property. Knight has no unrecaptured Sec. 1231 losses. Required: a) What is Knight’s 2010 taxable income? b) How much income must George recognize in 2010 as a result of the property distribution and what basis does George take in the property? c)
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