Skunk Corporation, an accrual basis taxpayer, has struggled to survive since its formation five years ago. As a result, it has a deficit in accumulated E&P of $375,000 at the beginning of the year. This year, however, Skunk Corporation earned a significant profit; taxable income was $291,000. Consequently, Skunk Corporation made a cash distribution to Gus, its sole shareholder: $342,000 on December 31.

The following information might be relevant to determining the tax treatment of the distributions.

This year's taxable income included a net operating loss carryover of $14,300.

The corporation's Federal income tax liability is $58,500 for the year.

Skunk Corporation paid nondeductible fines and kickbacks of $11,300. The company also paid non-deductible life insurance premiums of $17,200.

The cash surrender value of the corporate-owned life insurance policies increased by $12,500 during the year.

The company sold a piece of equipment during the year and reported a 1231 gain of $111,000 and recapture income under 1245 of $47,000. There were no other 1231 transactions during the year, but the corporation did have a capital loss carryforward of $26,700.

MACRS depreciation exceeds E & P depreciation by $12,200. In addition, an election under 179 was made this year for $38,000 of assets.

REQUIRED:

a.) Compute Skunk Corporation's Current E & P for the year (before distributions).

b.) What are the tax consequences of the distribution made during the year to Gus (his stock basis is $62,000)?

(Identify taxable dividend, return of capital, capital gains, stock basis after distributions).