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Mandarini Mandarini
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2 years ago
Oreo Corporation has accumulated E&P of $8,000 at the beginning of the current year. During the year (a nonleap year), the corporation incurs a current E&P deficit of $18,250. The corporation distributes $11,000 on March 20th to Morris, its sole shareholder, who has a $9,000 basis for his stock. If the exact loss cannot be determined as of the date of distribution, the treatment of the distribution will be
A) $4,100 dividend and a $6,900 capital gain.
B) $11,000 return of capital.
C) $4,100 dividend and a $6,900 tax free return of capital.
D) $8,000 dividend and a $3,000 return of capital.
Textbook 

Prentice Hall's Federal Taxation 2014 Corporations, Partnerships, Estates & Trusts


Edition: 27th
Authors:
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RimounRimoun
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2 years ago
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C
Explanation:  C) 31 + 28 + 19 = 78; 78/365 × $18,250 = $3,900 reduction in accumulated E&P.
$8,000 - $3,900 loss accrued to distribution date = $4,100 E&P available for distribution. $6,900 ($11,000 - $4,100) balance of the distribution is a return of capital.
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