Determine which credits will be used in 2017, and which will be carried forward
ID: 2414694 • Letter: D
Question
Determine which credits will be used in 2017, and which will be carried forward to future years 2. Green Country Corporation reported current earnings and profits of $500,000 in 2017, and had accumulated earnings and profits of $100,000. The corporation distributed $650,000 to it sole shareholder, Roy Webb, on December 31, 2017. Roy's stock basis is $100,000. Calculate a. the amount of the distribution that is taxable as a dividend to Roy? b. Roy's tax basis in his stock after the distribution, and c. Green Country's balance in accumulated earnings and profits as of January 1, 2018Explanation / Answer
The distribution to shareholder will be treated as dividend to the extent of earnings and profits (both current and accumulated), distribution more than that are treated as return on capital.
a. Amount of distribution taxable as dividend to Roy
Current Earnings and profits $500,000
Accumulated Earnings and profits $100,000
Distribution as dividend $600,000
b. Roy's tax basis in his stock after the distribution
Distribution to Roy $650,000
less: distribution as dividend $600,000
Distribution as return on capital $50.000
Stock Basis before distribution $100,000
Less: distribution as return on cspital $50,000
Tax basis after distribution $50,000
c. Balance in accumulated earnings and profits as of January 1, 2018
Current Earnings and profits $500,000
Accumulated Earnings and profits $100,000
Total Earnings and profits $600,000
Less: distribution as dividend $600,000
Balance in accumulated earnings and profits is $0
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