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On March 1, Cream Corporation transfers all of its assets to Coffee Corporation in exchange for 10% of its common voting stock. At the time of the reorganization, Cream has assets valued at $4 million basis of $3 million), and its earnings and profits account shows a deficit of $650,000. Coffee's earnings and profits as of March 1 were
$420,000. Due to the reorganization, Coffee has an NOL for the current year of $150,000. Coffee still declares its usual dividends of $100,000 paid on April 30, August 31, and December 31 $300,000 of total dividends).
How are the Coffee shareholders taxed on the distribution?
Indebtedness
The condition of owing money or being under financial obligation to others, which could include loans or issued bonds.
Profitability
A measure of how efficiently a company or business generates profit in relation to its revenue.
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