Zebra Corporation Has Always Been an S Corporation and Is

question 91

Essay

Zebra Corporation has always been an S corporation and is 100% owned by Paul. Paul has a basis of $40,000 in his Zebra stock at the beginning of the year. During the year, Zebra has an ordinary loss of $20,000 and a long-term capital gain of $10,000. In addition, Zebra Corporation distributed $55,000 in cash to Paul on December 1. Will the distribution cause Paul to recognize a gain? If so, what are its amount and character?

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Definitions:

Retained Earnings

Profits that a corporation keeps.

Profitable Year

A fiscal period during which a company's revenue exceeds its expenses, resulting in profit.

Machinery

Mechanical, electrical, or computer devices or equipment designed to perform specific tasks or functions, often in an industrial or manufacturing context.

Implied Power

Powers not explicitly stated in laws or regulations but deemed necessary to implement express powers or authority.