Steve and Tony each own 50% of Avenge, This, Inc., a calendar year corporation.

Question

Steve and Tony each own 50% of Avenge, This, Inc., a calendar year corporation. At the end of June, Steve sell his shares to Hank Pym for $110,000. On January 1, the corporation had accumulated E & P of $200,000. Its current E & P is $250,000 (prior to any distributions). Avenge distributed $260,000 on April 15 ($130,000 to Steve and $130,000 to Tony). On November 9, it distributed another $260,000 on ($130,000 to Tony and $130,000 to Hank). What are the tax implications of the $130,000 distribution to Hank?

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Explanation / Answer

Profits distribution will have no tax implication in the hands of hank as he is now held as the shareholders of the company and any profit distributed to shareholder of the company is exempt in the hand of the sahreholders as they have alreday been taxed in the hands of the company

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