During the current year, Nevada Corporation distributed $100,000 in cash to its sole shareholder. Because the corporation has a $300,000 accumulated E&P deficit at the beginning of the current year and only $30,000 of taxable income in the current year, Nevada’s controller believes that the distribution should be treated as a tax-free return of capital to the shareholder. Your investigation reveals the following information that may have an effect on the computation of current E&P:
Federal income tax liability............................................................$ 4,500
Dividends-received deduction........................................................60,000
Excess of MACRS depreciation over
Alternative Depreciation System depreciation.............................30,000
Excess charitable contributions........................................................9,000
U.S. production activities deduction..............................................10,000
a. What is Nevada’s current E&P?
b. How much (if any) of the $100,000 cash distribution is taxable as a dividend to the sole shareholder?
c. What is the amount of Nevada’s accumulated E&P balance (deficit) on the last day of the current year?