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C12-Chp-05-1A-Corp-Distributions-2012

# C12-Chp-05-1A-Corp-Distributions-2012 - Chapter 5 Corporate...

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Chapter 5. Corporate Distributions Howard Godfrey, Ph.D., CPA Professor of Accounting Updated January 31, 2012 Copyright 2012

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The student should be able to: 1.Compute current earnings and profits (E&P). Pg-3 2.Understand the difference between current and accumulated E&P. Pg-8 3.Determine the tax consequences of nonliquidating cash distributions and property distributions. Pg-10+ 4.Determine the tax consequences of stock dividends and distributions of stock rights . Pg-18+
1. Calculate current earnings & profits (E&P).

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Nonliquidating Distributions - General. A distribution can be in money, securities, or any other property except stock or stock rights of the distributing corporation. As a result of the 2003 Act, qualified dividends received by a noncorporate shareholder are temporarily subject to a maximum tax rate of 15%.
5 Nonliquidating Dist. in General. Cont’d 1. Shareholder includes in gross income as a dividend any nonliquidating distribution by a corp to the extent that it is out of earnings and profits (E&P). 2. To the extent a distribution exceeds E&P, it is a return of capital and reduces the shareholder's basis in his stock. 3. To the extent that a distribution exceeds E&P and stock basis, gain is recognized that is a capital gain if the stock is a capital asset in the shareholder's hands. Sections 301(a), 301( c) and 316

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6 Accum. E&P at 1-1-2012 \$120,000 Earn. & Profits for 2012 160,000 Cash dividends to individual stockholders in 2012 360,000 What is amount of dividend income taxable to stockholders in 2012? a. \$0 b. \$160,000 c. \$280,000 d. \$360,000 CPANov1995 Sec. 301(a), 317(a), 316 Dahl Corp. had this Information:
7 Accum. E&P at 1-1-2012 \$120,000 Earn. & Profits for 2012 160,000 Cash dividends to individual stockholders in 2012 360,000 What is amount of dividend income taxable to stockholders in 2012? c. \$280,000 Sec. 301(a), 317(a), 316 Dahl Corp. had this Information:

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8 C corp. -nonliquidating dist. 1 of 2 Cash distribution to shareholders \$1,000 Total current & accum. E&P \$750 Total paid-in capital was \$10,000 Impact on shareholders: I. Taxable as ordinary income of: \$750 II. Reduced adj. bases in stock by: \$250 a. I only. b. II only. c. Both I and II. d. Neither I nor II. CPA-Nov-95
9 C corp. -nonliquidating dist. 2 of 2 Cash distribution to shareholders \$1,000 Total current & accum. E&P \$750 Total paid-in capital was \$10,000 Impact on shareholders: I. Taxable as ordinary income of: \$750 II. Reduced adj. bases in stock by: \$250 Sec. 301( c)(1), 301( c)(2) c. Both I and II.

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10 Bob-Stock Redemption – 1 of 2 Jan. 2, 2011 . An investor (Bob) paid \$40,000 for all 4,000 shares of newly organized ABC Corporation. Price: \$10 per share Jan. 3, 2011. Bob found that ABC would not need the entire \$40,000 for its initial asset acquisitions. Jan. 3, 2011. Bob sold 1,000 of his shares back to the corporation at his cost of \$10 per share, or a total of \$10,000. ABC had taxable income (and E&P) of \$100,000 for 2011, and made no further distributions to Bob. How does Bob treat the Redemption?
11 Bob-Stock Redemption – 2 of 2 The redemption will be treated as a dividend of \$10,000.

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C12-Chp-05-1A-Corp-Distributions-2012 - Chapter 5 Corporate...

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