Betancourt Corporation is a calendar-year taxpayer. All of the stock is owned by
ID: 2544547 • Letter: B
Question
Betancourt Corporation is a calendar-year taxpayer. All of the stock is owned by Austen. Her basis for the stock is $35,000. On March 1 (of a non-leap year), Betancourt Corporation distributes $120,000 to Austen. Determine the tax consequences of the cash distribution to Austen in each of the following independent situations (i.e. dividend, return of capital, capital gain. Impact on stock basis). Explain fully your answers.
Current E&P Accumulated E&P $30,000 $80,000 70,000 (50,000) (100,000) 40,000 (20,000) (50,000)Explanation / Answer
Answer
A.
$120,000 is a dividend to Austen
B.
$70,000 is dividend.$35,000 is a return of capital, which reduces Austen's basis to zero.The remaining $35,000 is taxable as a capital gain.
C.
Green's accumulated E&P as of March 1 = $40,000 - ($100,000 x 59 / 365). =$23,857
Therefore, $23,857 is taxable as a dividend.$35,000 is a return ofcapital and the remaining $61,143 is taxable as a capital gain.
D.
$35,000 is a return of capital which reduces Evan's basis to zero and theremaining $85,000 is a capital gain.
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