Total Corporation Has Earned $75,000 Current E&P and Has an Accumulated

question 426

Multiple Choice

Total Corporation has earned $75,000 current E&P and has an accumulated E&P deficit from prior year of $25,000. The corporation pays a $100,000 distribution to shareholders. Shareholders of the corporation have a total stock basis of $40,000. The tax results of the distributions to the shareholders will be

• A) dividend income of $75,000 and tax- free return of capital of $25,000.
• B) dividend income of $60,000 and tax- free return of capital of $40,000.
• C) dividend income of $50,000, tax- free return of capital of $40,000 and capital gain of $10,000.
• D) dividend income of $100,000.

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Definitions:

Investments

The act of allocating resources with the expectation of generating an income or profit, often through acquiring assets like stocks, bonds, or real estate.

Business

Any organization or entrepreneurial entity engaged in commercial, professional, or industrial activities.

Assessed Values

The valuation placed on a property by a public tax assessor for purposes of taxation.

Taxes

Mandatory financial charges or levies imposed by a government on its citizens and businesses to fund public expenditures.