Question 1

Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise.

Accepted Answer

Corporate distributions are presumed to be paid out of E & P (earnings and profits), and as a result, they are treated as dividends unless it can be demonstrated otherwise.

Question 2

Regardless of any deficit in accumulated E & P,distributions during the year are treated as dividends to the extent of current E & P.

Accepted Answer

Under the tax law, distributions made by a corporation are treated as dividends to the extent of current E&P, regardless of any deficit in accumulated E&P. This means that even if a corporation has a negative balance in its accumulated E&P account, it may still make distributions to its shareholders that will be treated as dividends for tax purposes as long as it has positive current E&P.

Question 3

If a distribution of stock rights is taxable and their fair market value is less than 15 percent of the value of the old stock,then either a zero basis or a portion of the old stock basis may be assigned to the rights,at the shareholder's option.

Accepted Answer

The answer of If a distribution of stock rights is...

Question 4

A constructive dividend must satisfy the legal requirements of a dividend as set forth by applicable state law.

Accepted Answer

A constructive dividend does not need to satisfy the legal requirements of a formal dividend; it is an IRS concept used to reclassify certain payments or benefits to shareholders as dividends for tax purposes.

Question 5

Property distributed by a corporation as a dividend is subject to a liability in excess of its basis.For purposes of determining gain on the distribution,the basis of the property is treated as being not less than the amount of liability.

Accepted Answer

The answer of Property distributed by a corporation as a...

Question 6

When current E & P has a deficit and accumulated E & P is positive,the two accounts are netted at the date of the distribution.If a positive balance results,the distribution is treated as a return of capital.

Accepted Answer

If a positive balance results after netting current and accumulated E&P, the distribution is treated as a dividend, not a return of capital.

Question 7

The amount of dividend income recognized by a shareholder from a property distribution is always reduced by the amount of liabilities assumed by the shareholder.

Accepted Answer

The amount of dividend income recognized by a shareholder from a property distribution is reduced by the amount of liabilities assumed by the shareholder because the liabilities are considered to be a payment for the property.

Question 8

A corporation that distributes a property dividend must reduce its E & P by the fair market value of the property less any liability on the property.

Accepted Answer

The answer of A corporation that distributes a property dividend...

Question 9

The rules used to determine the taxability of stock dividends also apply to distributions of stock rights.

Accepted Answer

The rules for determining the taxability of stock dividends, such as whether they are classified as qualified or non-qualified, also apply to distributions of stock rights.

Question 10

All dividends received by individual shareholders are subject to either a 15% or a 0% tax rate.

Accepted Answer

The tax rate on dividends for individual shareholders can vary based on their income level and filing status, with rates potentially being 0%, 15%, or 20%.

Question 11

In general,a nonqualified stock redemption is denied sale or exchange treatment because the shareholder's ownership interest in the corporation is not sufficiently diminished as result of the redemption.

Accepted Answer

Nonqualified stock redemptions are typically not treated as a sale or exchange under tax law because the shareholder's ownership interest in the corporation is not significantly reduced as a result of the redemption. As a result, the shareholder is often treated as receiving a dividend distribution instead of a capital gain or loss.

Question 12

A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution.

Accepted Answer

The answer of A corporate shareholder that receives a constructive...

Question 13

During the year,White Corporation distributes land to its sole shareholder.If the fair market value of the land is more than its adjusted basis,White will not recognize gain on the distribution.

Accepted Answer

Corporations must recognize gain on the distribution of appreciated property to shareholders, as if the property were sold at its fair market value.

Question 14

When current E & P is positive and accumulated E & P has a deficit balance,the two accounts are netted for dividend determination purposes.

Accepted Answer

The answer of When current E & P is positive...

Question 15

Dividends from foreign corporations are not qualified dividends.

Accepted Answer

The answer of Dividends from foreign corporations are not qualified...

Question 16

Constructive dividends have no effect on a distributing corporation's E & P.

Accepted Answer

Constructive dividends do affect a corporation's Earnings and Profits (E&P) because they are treated as if the corporation had declared and paid a cash dividend, thus reducing the corporation's E&P.

Question 17

Dividends taxed at a 15% rate are not considered investment income for purposes of the investment interest expense limitation.

Accepted Answer

This statement is true. Dividends taxed at a 15% rate, which includes qualified dividends, are not considered as investment income for the purpose of the investment interest expense limitation. This means that taxpayers cannot deduct investment interest expenses that exceed their net investment income, but they can still deduct the full amount of their investment interest expenses if their only investment income is qualified dividends taxed at the 15% rate or lower.

Question 18

If stock rights are taxable,the recipient has income to the extent of the fair market value of the rights.

Accepted Answer

Stock rights are considered income to the recipient and are taxed based on the fair market value of the rights at the time they are received.

Question 19

Under no circumstances can a distribution generate (or add to)a deficit in E & P.

Accepted Answer

This statement is true. According to the Internal Revenue Code, a corporation is prohibited from making any distributions that would generate or add to a deficit in its accumulated earnings and profits (E&P) account. If a corporation has negative E&P, it cannot make any distributions until it has sufficient earnings and profits to cover the distribution.

Question 20

If a stock dividend is taxable,the shareholder's basis of the newly received shares is determined by reallocating the basis of the previously owned stock.

Accepted Answer

The answer of If a stock dividend is taxable,the shareholder's...

Quiz 19: Corporations: Distributions Not in Complete Liquidation