Question

On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($450,000 to Anne on April 1, $150,000 To Tom on August 1) to its two shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, while Tom's basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom? (Identify full tax consequences for both Anne & Tom).

Answer 1

The effect of the distribution by Tulip corporation on Anne and Tom can be calculated as follows Given Accumulated E&P=$300,000 Current year E&P = $90,000 Total Tukip distributes = $600,000 In this $450,000 to Anne and $150,000 to Tom Anne hasa basis in her stock = $65,000 Tom has a basis in her stock=$120,000 Particulars Amount ($) Accumulated € 87 300,000 Addit Current year E&P 90,000 Total E&P 390,000 Lene Tulip's distribution (600,000) Dividend amount to be shared 210,000 This dividend amount is to be adjusted b/w Anne&tom e Particulars Anne's share (6) Tom's share ($) Dividendamunt to be shared Amount distributed by Tulip 450,000 150,000 Dindend amount (Note I) 457,soo (52,500 Balance 298,5oo 97,500 Stock basis, ( 65,000) (1 20,000) Capital Gain / Los $227,500 $ (Q2,500) Note 1- Anne's share => & 19000x45.9,000 =$157,500 Tom's share >210,000 x 150,000 $52,500 . The capital Gain of Anne is ang tone is $887,500 and the capital los good a of Tom is $285oo. The capital gain of Anne is taralele at the rate of 0% (1) 15% ondol depending on the taxable income and filing status of Anne-