Chapter 19) Corporations: Distributions Not in Complete Liquidation Homework Submission30

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Chapter 19) Corporations: Distributions Not in Complete Liquidation Homework Submission30.The dividend income will be subject to the 15% tax rates. Each shareholders stock is reduced by$20,000 with any excess being treated as capital gain. Therefore, Pam will reduce her stock basis to zero and will have a taxable gain of $8,000 and Jon reduces his stock basis to $6,000 with no income tax consequences. 33. Sparrow Corporations current E&P is $331,133 42. Cerulean will have some tax issues with how the property that they distributed to Eloise will be taxed and there will also be some tax issues for Eloise and Olivia on their distributions. There will also be tax consequences for Eloise and Magnus Corporations on the cash that they receive as well as canOlivias transfer of her stock to Magnus be considered nontaxable.44 a. The result of this transaction is a realized loss of $50,000, plus a constructive dividend of $25,000. Parrot cannot recognize the realized loss but it does reduce its E & P. The constructive dividend also reduces E & P by $25,000. In total E & P is reduced by $75,000. b. The loan of $250,000 to Jerry generates imputed interest since no interest was charged. The amount of imputed interest is $13,125 and that amount is paid as interest to the Parrot Corporation. Parrot will have taxable interest income of $13,125. Parrots E& P does not see any change. c. Tom has $42,000 (120 hours x $350 hourly rental rate) of dividend income and Jerry has dividend income of $56,000 (160 hours x $350 hourly rental rate). Parrots E& P is reduced by both amounts. d. The $11,000 excess amount of rental paid to Tom by Parrot Corporation over the fair rental value of the equipment is treated as a constructive dividend which is then taxable to Tom and will reduceParrots E& P. 51 a. Lori would have dividend income of $600,000 and Swan Corporation would have to reduce its E & P by $600,000. Lori would also have a basis of $600,000 in the new 500 shares and would become the sole shareholder of Swan. Robert would have a capital gain of $515,000 from the sale.I dont think there would be any tax effect on Swan Corporation.b. If Swan Corporation redeems all of Roberts stock this wouldresult in a capital gain of $515,000 for Robert. Lori would become the sole shareholder as a result of this redemption.