Question

At the beginning of the year, Myrna Corporation (a calendar year taxpayer) holds E & P of $87,900. The corporation generates no additional E & P during the year. On December 31, the corporation distributes $131,850 to its sole shareholder, Abby, whose stock basis is $26,370. How does the Federal income tax law treat this distribution?

As a result the distribution Abby has the following:
• Dividend income:_____ $
• Return of capital: _____ $
• Capital gain:_____ $
• Stock basis after the distribution:_____ $

Answer 1

Corporate distnbutlions ave presumed be paid out of E P and ave tvected as dividends undess the to the transaction can show othorwise Distnbutims not treted as diniclends (becau se of insuftiuet EP are non-taxable to the extent of the shaveholders Par ties stock basis , which is yeduced accov the distn butin over the chaveholdler's basis is tveated as gain rom sale (or) exchange of the stock . The excCSS of / Dividend income 87,900AMovrt cistnibuted as EP Return of Capital = 26, 370 ofthe remaining 3,150 131,850-8A0 capital gan= distnbuted 26,370 excess Teduces her stock basis AS a vesult, Abby recogni zes a taxable Jain ot1,580which is excess distibution over aby's basis in stock C43,95026,30] disenbuti-o aftey Stock basis Corporation dsevibution Dividend income apital goin Stock basis