PROBLEM 3 (25 POINTS) For the 2016 tax year, Flack Corporation had a deficit in

Question

PROBLEM 3 (25 POINTS) For the 2016 tax year, Flack Corporation had a deficit in Current E & P of $103,590, and a positive balance in Accumulated E & P of $179,083. On December 31, Flack made a cash distribution of $169,570 to its sole shareholder, Christine: Christine has a basis in her Flack Corporation stock of $52,410. Required: Calculate the effects of the December 31 distribution, including the breakdown on Form 1099. SHOW ALL CALCULATIONS!!!! PROBLEM 3 (25 POINTS) For the 2016 tax year, Flack Corporation had a deficit in Current E & P of $103,590, and a positive balance in Accumulated E & P of $179,083. On December 31, Flack made a cash distribution of $169,570 to its sole shareholder, Christine: Christine has a basis in her Flack Corporation stock of $52,410. Required: Calculate the effects of the December 31 distribution, including the breakdown on Form 1099. SHOW ALL CALCULATIONS!!!! PROBLEM 3 (25 POINTS) For the 2016 tax year, Flack Corporation had a deficit in Current E & P of $103,590, and a positive balance in Accumulated E & P of $179,083. On December 31, Flack made a cash distribution of $169,570 to its sole shareholder, Christine: Christine has a basis in her Flack Corporation stock of $52,410. Required: Calculate the effects of the December 31 distribution, including the breakdown on Form 1099. SHOW ALL CALCULATIONS!!!!

Explanation / Answer

Current year Deficit                                                                              -103,590

Accumulated Previous Positive Balance                                                179,083

Net Positive Balance                                                                                75,493

Dividend Paid                                                                                          169,570

Excess Distributed (amount in excess of E&P)                                              94,077

Christine Basis in flak corporation                                                                52,410

So received in excess of basis will be treated as capital gain                         41,667

Taxability

Taxable Dividend would be                                     75,493

Non taxable return of capital                                   52,410

Taxable as capital Gain                                           41,667

Christine Basis in flak corporation after distribution       0

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