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Sparrow Corporation is a calendar year taxpayer. At the beginning of the current year, Sparrow has accumulated E & P of $268,400. The corporation incurs
Sparrow Corporation is a calendar year taxpayer. At the beginning of the current year, Sparrow has accumulated E & P of $268,400. The corporation incurs a deficit in current E & P of $375,760 that accrues ratably throughout the year. On June 30, Sparrow distributes $161,040 to its sole shareholder, Libby. If Libby's stock has a basis of $26,840, how is she taxed on the distribution? Taxable dividend income in the amount of $ 10,000 X. Return of capital in the amount of $ Capital gains in the amount of $ 6,000 X. Feedback Check My Work The importance of corporate distributions derives from the variety of tax treatments that may apply. From the shareholder's perspective, distributions received from the corporation may be treated as ordinary income, preferentially taxed dividend income, capital gain, or a nontaxable recovery of capital. From the corporation's perspective, distributions made to shareholders are generally not deductible
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