Star 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 $370,000 at the beginning of the year. This year, however, Star Corporation

earned a significant profit; taxable income was $282,000. Consequently, Star Corporation made a cash distribution to

Bob, its sole shareholde($340,000 on December 3PThe 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 $13,400.

The corporation's Federal income tax liability is $57,300 for the year.

Star Corporation paid nondeductible fines and kickbacks of $9,900. The company also paid nondeductible life

insurance premiums of $16,100.

The cash surrender value of the corporate-owned life insurance policies increased by $11,500 during the year.

The company sold a piece of equipment during the year and reported a 1231 gain of $110,000 and recapture income

under $ 1245 of $46,000. There were no other $ 1231 transactions during the year, but the corporation did have a

capital loss carry forward of $25,500.

MARS depreciation exceeds E & P depreciation by $11,900. In addition, an election under 179 was made this year

for $38.000 of assets.

a.compute Star Corporations E&P for the year (before distributions)

b. What are the tax consequences of the distribution made during the year to Bob (his stock basis is 40,000)