Chapter 18 Corporate Taxation: Nonliquidating Distributions
1. [LO1] What is supposed by the time period double taxation of company earnings? 2. [LO1] three. [LO1] Why would possibly a shareholder who can be an worker choose receiving a dividend as an alternative of compensation from a company? four. [LO2] What are the three potential tax therapies of a money distribution to a shareholder? Are these potential tax therapies elective by the shareholder? 5. [LO2] Usually, what's the idea of earnings and earnings designed to symbolize? 6. [LO2] How does present earnings and earnings differ from accrued earnings and earnings? Is there any congressional logic for holding the 2 accounts separate? 7. [LO2] True or False. A calendar-year company has optimistic present E&P of $100 and accrued unfavourable E&P of $200. A money distribution of $100 to the corporation’s sole shareholder at year-end won't be handled as a dividend as a result of complete E&P is unfavourable $100. Clarify. eight. [LO2] True or False. A calendar-year company has unfavourable present E&P of $100 and accrued E&P of $100. A money distribution of $100 to the corporation’s sole shareholder on June 30 won't be handled as a dividend as a result of complete E&P at December 31 is $zero. Clarify. 9. [LO2] Record the 4 primary changes that a company makes to taxable earnings or internet loss to compute present E&P. What's the rationale for making these changes? 10. [LO2] What should a shareholder contemplate in computing the quantity of a noncash distribution to incorporate in her gross earnings? A shareholder should decide the truthful market worth of the distribution and any legal responsibility she is going to assume on receipt of the property. The shareholder’s dividend quantity is the truthful market worth of the property acquired much less any legal responsibility assumed on the property. 11. [LO2] What earnings tax points should a company contemplate earlier than it makes a noncash distribution to a shareholder? 12. [LO2] Will the shareholder’s tax foundation in noncash property acquired equal the quantity she contains in gross earnings as a dividend? Beneath what circumstances will the quantities be completely different, if any? 13. A shareholder receives appreciated noncash property from his company and assumes a legal responsibility hooked up to the property. How does the legal responsibility assumption have an effect on the quantity of dividend he experiences in gross earnings? 14. A shareholder receives appreciated noncash property from his company and assumes a legal responsibility hooked up to the property. How does this assumption have an effect on the quantity of acquire the company acknowledges? From the corporation’s perspective, does it matter if the legal responsibility assumed by the shareholder exceeds the property’s gross truthful market worth? 15. [LO2] An organization distributes appreciated noncash property to a shareholder as a dividend. What impression does the distribution have on the corporation’s earnings and earnings? 16. [LO3] Amy is the only real shareholder of her company. Quite than have the company pay her a dividend, Amy decides to have the company declare a “bonus” at year-end and pay her tax-deductible compensation. What potential tax subject could come up on this state of affairs? Which events, Amy or the company or each, are affected by the classification of the cost? 17. [LO4] Why would possibly a company subject a inventory dividend to its shareholders? 18. [LO4] What tax subject arises when a shareholder receives a nontaxable inventory dividend? 19. [LO4] Usually, what causes a inventory dividend to be taxable to the recipient? 20. [LO5] What are the potential tax penalties to a shareholder who participates in a inventory redemption? 21. [LO5] What inventory possession exams should be met earlier than a shareholder receives alternate remedy underneath the considerably disproportionate change-in-stock-ownership check in a inventory redemption? Why is a change in inventory possession check used to find out the tax standing of a inventory redemption? 22. [LO5] What are the standards to fulfill the “not basically equal to a dividend” change-in-stock-ownership check in a inventory redemption? 23. [LO5] When would possibly a shareholder need to depend on the not basically equal to a dividend check in arguing her inventory redemption must be handled as an alternate for tax functions? 24. [LO5] Why do you suppose the tax legislation imposes constructive inventory possession guidelines on inventory redemptions? 25. [LO5] Which members of a household are included within the household attribution guidelines? Is there any rationale for the relations included within the check? 26. [LO5] Ilya and Olga are brother and sister. Ilya owns 200 shares of inventory in Parker Company. Is Olga deemed to personal Ilya’s 200 shares underneath the household attribution guidelines that apply to inventory redemptions? 27. [LO5] Maria has all of her inventory in Mayan Company redeemed. Beneath what situations will Maria deal with the redemption as an alternate and acknowledge capital acquire or loss? 28. [LO5] What should a shareholder do to waive the household attribution guidelines in a whole redemption of inventory? 29. [LO5] How does a corporation’s computation of earnings and earnings differ primarily based on the tax remedy of a inventory redemption to the shareholder (that's, as both a dividend or alternate)? If30. [LO6] How does the tax remedy of a partial liquidation differ from a inventory redemption?