Husker Corporation Reports Current E&P of Negative $200,000 in Year

question 115

Multiple Choice

Husker Corporation reports current E&P of negative $200,000 in year 1 and accumulated E&P at the beginning of the year of $300,000. Husker distributed $200,000 to its sole shareholder on December 31, year 1. The shareholder's tax basis in her stock in Husker is $50,000. How is the distribution treated by the shareholder in year 1?

• A) $200,000 dividend
• B) $100,000 dividend, $50,000 tax-free return of basis, and $50,000 capital gain
• C) $100,000 dividend and $100,000 tax-free return of basis
• D) $0 dividend, $50,000 tax-free return of basis, and $150,000 capital gain

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Definitions:

Powerful Winds

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The geopolitical boundary that separates Canada from the United States, running along the 49th parallel north for much of its length.