White Corporation is a calendar-year taxpayer. Wilhelmina owns all of its stock.

Question

White Corporation is a calendar-year taxpayer. Wilhelmina owns all of its stock. Her basis for the stock is 25,000. On March 1 of the current year (not a leap year), White Corporation distributes $60,000 to Wilhelmina. Determine the tax consequences of the cash distribution to Wilhelmina in each of the following independent situations: a) Current E&P $15,000, accumulated E&P $50,000 b) Current E&P $25,000, accumulated E&P $(25,000) c) Current E&P ($36,500), accumulated E&P $65,000. d) Current E&P ($10,000), accumulated E&P $(25,000). provide feedback to 1 or more peer's post. Answer the question and Page Ref.: C:4-9 and C:4-10 Objective: 3

Explanation / Answer

1. A distribution from a corporation is a dividend to the extent of the corporation’s current-year E&P and accumulated E&P. A distribution will be treated as a dividend to the extent of a corporation’s current-year E&P, even if the corporation has an accumulated E&P deficit.

  Situation A: $60,000 full treated as taxable dividend

Situation B: $25,000 treated as taxable dividend, $25,000 return of capital (non-taxable) and balance $10,000 taxable capital gain

Situation C:$28,500 (65,000-36,500) treated as taxable dividend, $25,000 return of capital (non-taxable) and balance $6,500 taxable capital gain

Situation D: $25,000 return of capital (non-taxable) and balance $35,000 taxable capital gain

2. Calculation of Taxable Income

Service Revenue $       66,250 Less: Expenses Salaries & Wages $      -29,680 Advertising $        -1,910 Rent $      -11,020 Utilities $        -3,290 Taxable Income $       20,350

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