Houghton Company Reports Negative Current E&P of ($500,000) and Negative

question 89

Essay

Houghton Company reports negative current E&P of ($500,000) and negative accumulated E&P of ($800,000). Houghton distributed $100,000 to its sole shareholder, Blossom Applegate, on December 31, 20X3. Blossom's tax basis in her Houghton stock is $50,000. What is the tax treatment of the distribution to Blossom and what is her tax basis in Houghton stock after the distribution?

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Definitions:

Binding Decision

A final and authoritative decision or ruling that is mandatory and must be followed or complied with.

Neutral Third Party

An unbiased, impartial entity or individual that is not involved in the conflict and can facilitate negotiation or resolution.

Assertiveness

The quality of being self-assured and confident without being aggressive, enabling clear and direct communication.

Cooperativeness

The willingness of individuals or groups to work together towards common goals or outcomes.