Question
Steel Corp has 1,000 shares outstanding and two equal shareholders, Frank and Bob. Bob has a basis of $5,000 in his 500 shares and Frank
Steel Corp has 1,000 shares outstanding and two equal shareholders, Frank and Bob. Bob has a basis of $5,000 in his 500 shares and Frank has a basis of $2,500 in his 500 shares, both owners purchased their shares 3 years ago. Determine the tax consequences of the following distributions to the shareholders and to Steel Corp.
A.Steel Corp has accumulated E&P of $5,000 and current E&P of $3,000 and makes a distribution of $10,000 on December 31st of the tax year ($5K to each shareholder).
B. Disregarding A above, assume Steel Corp has accumulated E&P of $5,000 and current E&P of $3,000 for the year and makes a distribution of $5,000 on July 1 of the tax year and another distribution of $10,000 on December 31st of the tax year. Bob sells his shares to Mark on October 15th for $10,000.
C. Disregarding A and B above, assume Steel Corp has a deficit in accumulated E&P of $5,000 and current E&P of $3,000 and makes a distribution of $9,000 on December 31st of the tax year ($4,500 to each shareholder).
D. Disregarding A through C above, assume Steel Corp has accumulated E&P of $5,000 and a current E&P deficit of $4,000 for the year and makes a distribution of $5,000 on July 1 of the tax year.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started