Pixel Corporation was originally founded by two individuals. These founding shareholders each own 1,000 shares of Pixels class A common stock. The companys class B common stock is publicly-traded on the NASDAQ. Prior to the distributions described below, there were 4,000 shares of class A common stock (which have super-voting rights) and 320,000 shares of class B common stock outstanding. On January 1, 20Y1, Pixel has accumulated E&P of $17.4 million. Pixels 20Y1 taxable income is $2,964,000 before considering the distribution of land on November 1, 20Y1.Pixels 20Y1 taxable income reflectstwo special deductions, a dividends-received deduction of $22,300 and a foreign-derived intangible income deduction of $37,500. Pixels MACRS depreciation deduction was $791,000. Pixels ADS depreciation was $698,000. The following expenditures made by Pixel during 20Y1 were not deducted:

Premiums on key-person life insurance policies of $24,000

Fines and penalties of $6,600

Meals and entertainment expenses of $11,800

Federal income tax expense of $1,100,000

On March 1, 20Y1, Pixel made a cash distribution of $10 per share to all its class A and class B common shareholders. On November 1, 20Y1, Pixel distributed an undivided interest in a piece of undeveloped land to each of the two class A common shareholders. The land had a market value of $1 million on the date of the distribution and a tax basis to Pixel of $350,000.

1. What is Pixels final taxable income for 20Y1, after taking into account the distribution of land on November 1, 20Y1. Show your work.

2. Use the following table to compute Pixels current E&P for 20Y1. Check figure: $2,624,400

Taxable income

Current E&P

3. Explain the tax consequences of the March 1 cash distribution to the shareholders and to Pixel.

4. Explain the tax consequences of the November 1 property distribution to the shareholders and to Pixel.

5. Use the following table to compute Pixels accumulated E&P on December 31, 20Y1. Check figure: $15,784,400

January 1, 20Y1 accumulated E&P

December 31, 20Y1 accumulated E&P

6. Now assume that Pixels accumulated E&P on January 1, 20Y1 was only $400,000 rather than $17.4 million. Use the following table to determine the dividend and non-dividend (return of capital or capital gain) portions of the March 1 and November 1 distributions. Check figures: March 1 dividend = $2,405,438, November 1 dividend = $618,962