The General Pattern of Section 301 and section 316 Cash Distributions

ABC Corp (ABC) was formed 15 years ago by A, B & C (3 individuals). ABC uses the cash method of accounting and reports on a calendar year basis. A, B & C still own 100 shares each of the 300 shares of ABC. On 7/1 of the current year, ABC distributed

$60,000.00, $20,000.00 each to A, B and C. No other distributions were made by ABC during the current year.

Assume A's adjusted basis in his ABC shares is $6,000.00, B's adjusted basis in her ABC shares is $50,000.00, and C's adj. basis in his ABC shares is -0-.

Unless otherwise stated, assume that the figure for "a/e&p" is the "accumulated earnings and profits" (or deficit) of ABC as of January 1 of the current year. Assume that's the figure for "c/e&p" is the "current earnings and profits" (or deficit) of ABC during the current year. Treat each situation separately and characterize the distributions to A, B & C.

(a) A/e&p is $40,000.00 and c/e&p is $30,000.00.

(a) A/e&p is $40,000.00 and c/e&p is $30,000.00.

(b) A/e&p is $0 and c/e&p is $30,000.00.

(c) A/e&p is $(60,000.00) and c/e&p is $30,000.00.

(d) A/e&p is $(30,000.00) and c/e&p is $(30,000.00).

(e) A/e&p is $45,000.00 and c/e&p is $(30,000.00).

6. In (e) above, assume that it was possible to point to a specific event in the current year which caused the current deficit. How would this affect your answer to (e)?
8. Assume that B owned half her shares with an adjusted basis of $5,000.00 and the other half with an adjusted basis of$45,000.00. How would this affect (if at all) any of your answers to (a) through (d) above?

8. In (g) above assume that B had acquired the shares with the $5,000.00 basis on 9/1 of the current year. How would this affect your answer to (g).

1. Assume that ABC had 3 classes of stock outstanding. A, B & C each owned 100% of one of the classes. A's stock is cumulative preferred stock entitled to a

$20,000.00 dividend priority over any other class. B's stock, while inferior to A's is entitled to a non-cumulative preference dividend of $20,000.00 over C's common stock. ABC distributes $60,000.00 ($20,000.00 each to A, B & C) as stated above. ABC's a/e&p is $40,000.00 and its c/e&p is -0- during the current year.

10. Assume that ABC is an old corporation. It has current e&p of $10,000.00, post 1913 accumulated e&p of $30,000.010pre 1913 accumulated e&p of $15,000.00, and it has realized a gain of $20,000.00 attributable to an increase in value which occurred before 1913. It distributes $60,000.00 ($20,000.00 each to A, B & C) on 7/1 of the present year.

11. Suppose that ABC makes 2 distributions during the cUJTent year: $48,000.00 on 3/1 and $12,000.00 on 9/1. ABC had a/e&p of$24,000.00 and c/e&p of

$20,000.00. What portion of each distribution is a dividend?