Be You Sailing distributed $10,000 to its two owners. Assume normal corporate distribution rules apply because the owners are not shareholder-employees nor is the distribution a guaranteed payment. The corporation had income well over $10,000 this first year of incorporation.

The distribution was likely distributed from Corporate

a.Shareholder Stock Accounts

b.Current Earnings and profits

c.Accumulated Earnings and profits

d.Liquidation

What should the tax treatment of this distribution be to the shareholder?

a.Dividend

b.Return of Capital

c.Capital Gain

d.Redemption of Stock

What if Be You Sailing had $50,000 current E&P and $20,000 in accumulated E&P, if the Corporation distributed each of the two shareholders $50,000, which of the following best describes the tax treatment of the distribution to each of the shareholders assuming they have a capital basis of $10,000 each.

a.Capital gain of $5,000 and Dividend of $45,000

b.Dividend of $30,000, Return of Capital of $10,000, and Capital Gain of $10,000

c.Return of Capital $25,000 and Dividend of $25,000

d.Dividend $35,000, Return of Capital $10,000, and capital gain $5,000