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:

Fraud

The intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.

Immigrant

A person who moves to a country other than their own for the purpose of permanent residence.

Void

Describes a contract or legal agreement that has no legal force or effect and is unenforceable.

Mistake

An error about some aspect of a contract that destroys consensus.