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Standard Corporation and its wholly owned subsidiary, Savings Corporation, operated on a calendar year. In January Year 1, Savings adopted a plan of complete liquidation. Two months later, Savings paid all of its liabilities and distributedits remaining assets to Standard. These assets consisted of the following:Cash$60,000 50,000Land (at cost)20,000 10,000Fair market value of the land was $40,000 /30,000. Upon distribution of Savings’ assets to Standard, all of Savings’ capital stock was canceled. Standard’s basis for the Savings stock was $7,000. Standard’s basis in the assets received in Savings’ liquidation is:A.$72,000B.$92,000C.$80,000D.$100,000CHECK Standard’s recognized gain in 2015 on receipt of Savings’s assets in liquidation was:Two unrelated individuals, Dave and Tom, own all the stock of Arnold Corporation, which has earnings and profits of $400,000. Because of his inactivity in the business for the last several years, Dave has decided to retire from the business completely and move to Oregon. Accordingly, Arnold Corporation will redeem all the stock owned by Dave and,in return, Dave will receive a distribution of $500,000. Dave’s adjusted basis in the stock is $250,000. What will be the tax effect to Dave?is treated asa distribution in part or full payment in exchange for the stock. Since Arnold Corporation redeemed all of Dave’s stock, the $500,000 distribution is treated as payment for the stock, and any gain is treated as capital gain. Theamount of the gain is computed under Sec. 1001 and is the amount by whichthe distribution exceeds the shareholder’s basis in the stock. In this case, thegain is $250,000 ($500,000 distribution – $250,000 basis). Since the stock is Bethel Corporation distributed $125,000 to its shareholders on December 31, 2017, the end of its taxable year. Bethel’s
capital structure was as follows:Capital stock - 5,000 shares issued and outstanding$500,000Current earnings and profits 1/1/17-12/31/1715,000Accumulated earnings and profits 3/1/13-12/31/1675,000Mr. Rutland held 200 shares of Bethel Corporation’s stock. His basis in the stock was $100 per share. How much of the Bethel Corporation distribution is a dividend to Mr. Rutland?A.$1,400B.$5,000C.$3,600D.$3,000A corporate distribution is a dividend that must be included in the recipient’s gross income under Sec. 301(c)(1) to the extent it comes from accumulated or current E&P of a corporation. To the extent the distribution exceeds current and accumulated E&P, it is treated as a return of capital to the shareholder. Bethel Corporation