FACTS: Jack and Jill form a C corporation called Up The Hill (UTH) specializing in manufacturing and selling anti-rolling equipment.

QUESTION #1

5 years after its formation, Up the Hill Corporation wants to pay dividends to its shareholders Jack and Jill. On 1/1 Year 6, it has accumulated E&P of $100,000 and current E&P of $50,000. It distributes a $20,000 cash dividend at the end of year to Jack and Jill for a total of $40,000.

How much of the dividend distribution is taxable to Jack and Jill? What is the effect to UTHs current E&P?