CorpTax-Slides for Chapter 3.f13

Rules contd current ep allocated to the distributions

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Unformatted text preview: t any reduction for dividend distributions made Without during the year during 7 Distributions—General Rules (Cont’d) Current E&P Allocated to the distributions pro rata based on the Allocated “amount distributed” “amount Accumulated E&P Allocated during the year in the chronological order of Allocated the distributions the Note that deficit in accumulated E&P may not be used Note not to offset current E&P to Corporation’s E&P The corporation’s E&P is reduced by the amount The distributed but not below zero distributed 8 Example At the beginning of the year, Corporation X has $20,000 At of accumulated E&P For the current year, X has $3,000 of taxable income. X also has $2,000 of tax-exempt income and $1,000 of expenses associated with earning the tax exempt income During the year X makes two cash distributions to individual A, X’s sole shareholder On February 14, X distributes $10,000, and on October 25, X distributes $30,000 distributes A has a basis of $10,000 in the X stock has Determine the tax consequences of each distribution to X and A and 9 Solution X Corporation Accumulated E&P $20,000 Current E&P Taxable income $3,000 Plus: tax-exempt income 2,000 Less: expenses of taxLess: exempt income (1,000) (1,000) 4,000 4,000 E&P available for distributions $24,000 Less: amount distributed (40,000) (40,000) Ending E&P 0 10 Solution (Cont’d) Individual A 1st Distribution Amount dist...
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