Tracy and Lance, Equal Shareholders in Macaw Corporation, Receive $600,000

question 85

Multiple Choice

Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each in distributions on December 31 of the current year. Macaw's current year taxable income is $1 million and it has no accumulated E & P. Last year, Macaw sold an appreciated asset for $1,200,000 (basis of $400,000) . Payment for one-half of the sale of the asset was made this year. How much of Tracy's distribution will be taxed as a dividend?

• A) $0
• B) $300,000
• C) $500,000
• D) $600,000
• E) None of the above

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Definitions:

Conditional Estate

An ownership interest in which the holder has the same interest as that in a fee simple absolute except that this interest is subject to a condition.

Patent

Protection that grants the holder the exclusive right to produce, sell, and use the object of the patent for 20 years; can be obtained for a product, process, invention, machine, or a plant produced by asexual reproduction.

70 Years

A measure of time often associated with copyright duration, extending 70 years beyond the life of the creator.

Easement

An irrevocable right to use some part of another’s land for a specific purpose without taking anything from it.