Volunteer Corporation reported taxable income of $415,000 from operations this y

Question

Volunteer Corporation reported taxable income of $415,000 from operations this year. The company paid federal income taxes of $141,100 on this taxable income. During the year, the company made a distribution of land to its sole shareholder, Rocky Topp. The land’s fair market value was $91,000 and its tax and E&P basis to Volunteer was $72,000. Rocky assumed a mortgage attached to the land of $18,200. Any gain from the distribution will be taxed at 34 percent. The company had accumulated E&P of $790,000 at the beginning of the year.

a. Compute Volunteer’s total taxable income and federal income tax.

b. Compute Volunteer's current E&P before the distribution.

c. Compute Volunteer’s accumulated E&P at the beginning of next year.

d. What amount of dividend income does Rocky report as a result of the distribution?

e. What is Rocky’s income tax basis in the land received from Volunteer?

Explanation / Answer

Ans a Taxable Income from oPerations $415,000 Gain on distribution of land (91000-72000) 19000 Total taxable Income T $434,000 Federal income tax 34%*T $147,560 ans b Current E & P Taxable Income $434,000 Less: Federal Income tax $147,560 Current E & P before distribution $286,440 ans c Current E & P $286,440 Less: FMV of land -91000 Add: mortgage assumed by Rocky 18200 Accumulated E & P at the beginning of year 790000 Accumulated E & P at the beginning of next year $1,003,640 ans d Dividend Income FMV of land 91000 Less: Liability assumed 18200 Dividend Income 72800 ans e Income tax basis is $91000 the FMV of land received

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