At the Beginning of the Current Year, Both Paul and John

question 4

Essay

At the beginning of the current year, both Paul and John own 50% of Apple Corporation. In July, Paul sold his stock to Sarah for $110,000. At the beginning of the year, Apple Corporation had accumulated E & P of $200,000 and its current E & P is $250,000 (prior to any distributions). Apple distributed $260,000 on March 1 ($130,000 to Paul and
$130,000 to John) and distributed another $260,000 on October 1 ($130,000 to Sarah and $130,000 to John). What are the tax implications of the $130,000 distribution to Sarah?

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Definitions:

Sole Proprietorships

A business structure owned and operated by one individual, where there is no legal distinction between the owner and the business entity.