Fillow Corporation acquires the assets of Grout Corporation in a valid Type C reorganization

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Fillow Corporation acquires the assets of Grout Corporation in a valid Type C reorganization. Both corporations are calendar year taxpayers. The reorganization is completed on December 31^st of Year 1. At the beginning of Year 1, Filliow had $30,000 in accumulated earnings and profits while Grout had a $50,000 deficit in accumulated earnings and profits. During Year 1, Fillow had $20,000 in current earnings and profits while Grout broke even.

 

 

1. If Fillow distributes $20,000 to its shareholders on December 31^st of Year 1, they will recognize  <Blank>.
2. After distributing $20,000 to its shareholders in Year 1, Fillow then breaks even and distributes $10,000 to its shareholders in Year 2. Fillow's shareholders will recognize  <Blank>  in Year 2.
3. After distributing $20,000 to its shareholders in Year 1, Fillow has current earnings and profits of $15,000 in Year 2 and breaks even in Year 3. Fillow makes no distributions in Year 2. On December 31^st of Year 3, Fillow distributes $45,000 to its shareholders. Fillow's shareholders will recognize <Blank> in Year 3.

 

Answer Key

• a dividend of $10,000
• a return of capital of $10,000
• a dividend of $20,000
• a return of capital of $30,000
• a dividend of $30,000
• a return of capital of $30,000
• a dividend of $40,000
• a return of capital of $40,000.