Exit Corporation Has Accumulated E&P of $24,000 at the Beginning

question 76

Essay

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year. Current E&P is $20,000. During the year, the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock. The treatment of the $15,000 August 1 distribution would be
A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P.
B) $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax- free as a return of capital.
C) $15,000 is taxable as a dividend from accumulated E&P.
D) $5,000 is taxable as a dividend from current E&P, and $10,000 is tax- free as a return of capital.

• A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P.
• B) $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax- free as a return of capital.
• C) $15,000 is taxable as a dividend from accumulated E&P.
• D) $5,000 is taxable as a dividend from current E&P, and $10,000 is tax- free as a return of capital.

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