Hoosier Corporation declared a stock distribution to all shareholders of record on March 25 of this year.

Question:

Hoosier Corporation declared a stock distribution to all shareholders of record on March 25 of this year. Shareholders will receive one share of Hoosier Corporation stock for each share of stock they already own. Hoosier reported current E&P of $600,000 and accumulated E&P of $3,000,000. The total fair market value of the stock distributed was $1,500,000. Barbara loomington owned 1,000 shares of Hoosier stock with a tax basis of $100 per share.
a. What amount of taxable dividend income, if any, does Barbara recognize this year? Assume the fair market value of the stock was $150 per share on March 25 of this year.
b. What is Barbara’s income tax basis in the new and existing stock she owns in Hoosier Corporation, assuming the distribution is nontaxable?
c. How does the stock distribution affect Hoosier’s accumulated E&P at the beginning of next year?

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