Since the operating losses are passed through each

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Unformatted text preview: $675,000. a. b. c. d. I only. II only. Both I and II. Neither I nor II. CPA-02257 Explanation Choice "b" is correct. The distribution reduced the shareholders' adjusted bases in Lincoln Corporation Stock by $675,000. Rule: Non-liquidating cash distributions (deemed dividends) are ordinary dividends to the shareholder to the extent of current and accumulated earnings and profits (retained earnings). Any portion paid in excess of current and accumulated earnings and profits is considered a return of capital to the shareholder, to the extent of the shareholder's basis (anything in excess of basis, which includes paid-incapital and common stock, is capital gain to the shareholder). Note: The distinction of whether the shareholders were corporate shareholders or individuals is a distractor for purposes of this question. It would make a difference for taxation of the dividends due to the corporate dividends received deduction, but this is not asked in the question. 63 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Maxixishere Pdf Collection Becker CPA Review, PassMaster Questions Lecture: Regulation 3 Reduction in...
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