On January 1,Cotton Candy Corporation (A Calendar Year Taxpayer)has Accumulated

question 81

Essay

On January 1,Cotton Candy Corporation (a calendar year taxpayer)has accumulated E & P of $400,000.Its current E & P for the year is $120,000 (before considering dividend distributions).During the year,Cotton Candy distributes $800,000 ($400,000 each)to its equal shareholders,Mary and Larry.Mary has a basis in her stock of $95,000,while Larry's basis is $160,000.What is the effect of the distribution by Cotton Candy Corporation on Mary and Larry?

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Definitions:

Scapegoating

The practice of singling out one party for unmerited blame or negative outcomes.

Bounded Rationality

A concept explaining that the cognitive limitations of decision makers lead to a less than optimal decision-making process.

Rational Model

A decision-making model based on a systematic, logical process of identifying problems, generating solutions, and selecting the best option.

Political Model

A theory suggesting that power and politics within an organization are vital in understanding decision-making processes and interactions among its members.