A Calendar-Year Corporation Has a $15,000 Current E&P Deficit and a $40,000

question 32

Multiple Choice

A calendar-year corporation has a $15,000 current E&P deficit and a $40,000 positive accumulated E&P balance. Also assume that shareholders of the corporation have a total basis in outstanding shares of $30,000. A $75,000 distribution is made to the shareholders on the last day of the year. The tax results to the shareholders will be

• A)dividend income of $25,000, a tax-free return of capital of $30,000, and capital gain of $20,000.
• B)dividend income of $0, a tax-free return of capital of $30,000, and capital gain of $45,000.
• C)dividend income of $25,000, a tax-free return of capital of $5,000, and capital gain of $45,000.
• D)dividend income of $40,000, a tax-free return of capital of $30,000, and capital gain of $5,000.

---

Definitions:

Attack On Fort Sumter

The bombardment and surrender of Fort Sumter in Charleston Harbor on April 12, 1861, marking the beginning of the American Civil War.

1861

The year that marked the beginning of the American Civil War, following the secession of several southern states from the Union.

Lincoln

The 16th President of the United States, Abraham Lincoln, known for leading the country during the Civil War and abolishing slavery.

1860 Election

The presidential election in which Republican Abraham Lincoln defeated three other candidates, leading to the secession of Southern states.