At the Beginning of the Current Year, Paul and John

question 17

Essay

At the beginning of the current year, Paul and John each 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:

Eudicots

Eudicots are a major group of flowering plants that are characterized by having two seed leaves, or cotyledons, and a specific pattern of floral organization.

Taproot

A primary root that grows vertically downward and gives off small lateral roots.

Nutritive Tissue

Tissue within an organism that provides essential nutrients for growth and development.

Pine Seed

The seed of a pine tree, often known as a pine nut, used for reproduction of the species and as a food source for wildlife and humans.