2. Small Corp is a calendar year taxpayer that has been in existence for 50 years. It has a single shareholder Sam, who holds 1000 shares with total basis of $50,000. In July of Year 51, Small Corp made distributions of $80,000 to Sam. No other distributions were made in Year 51. As of December 31 of Year 50, Small Corp had no E&P. In Year 51, Small Corp had before tax earnings of $50,000 as of July 1. It is now mid-December, and Sam has come to you asking for assurances about how this distribution will be taxed. Please show your calculations.

a. You also learn that Sam bought all of the stock of Small Corp for $50,000 on January 1 of Year 51. How is a distribution of $80,000 possible from a corporation worth $50,000 at the end of Year 50, which had no accumulated E&P at that date and doesnt know its current E&P for the year?

b. Sam also discloses that Small Corp might earn an additional $10,000 of income in the second half of the year. If this turns out to be true, how will the $80,000 distributed to Sam in July be taxed? Ignore any income tax expense consequences on income and assume that E&P and income are the same.

c. Instead assume Sam sold half of his stock for $50,000 shortly before the July 1 distribution and therefore only received half of the distribution?

d. Assume no stock sale, what if Small Corp actually lost $60,000 in the second half of Year 51?

e. Instead, what if Sam tells you there is a second class of common stock in Small Corp titled in his sons name (with a basis of $30,000), and which is entitled to a dividend totaling $30,000 which Sam plans on having Small Corp pay in December. How will this distribution affect the tax treatment of Sams distribution under the scenario where there is a loss of $60,000 in the second half of the year and accumulated E&P of $20,000 at the beginning of the year.