1. Toga Corporation (Toga) is a calendar year corporation with CE&P of $100,000 in 2016. Toga has a deficit in AE&P at the beginning of the year of ($200,000) (i.e., negative $200,000).

Toga makes a nonliquidating distribution of $300,000 to its sole shareholder (Bluto) on January 1, 2016. Blutos tax basis in his stock in Toga was $40,000 immediately prior to the distribution. The stock is a capital asset in Blutos hands, and Bluto has a long-term holding period in the stock. What is the tax treatment of the distribution to Bluto?

1. 1. $300,000 dividend
   2. $100,000 dividend, $40,000 tax-free return of capital, and $160,000 long-term capital gain
   3. $0 dividend, $40,000 tax-free return of capital, and $260,000 ordinary income
   4. $0 dividend, $40,000 tax-free return of capital, and $260,000 long-term capital gain
   5. $100,000 dividend, $40,000 tax-free return of capital, and $160,000 ordinary income
2. Cheesesteak Corporation (Cheesesteak) is a calendar year corporation. Cheesesteak had $10,000 of CE&P for its 2016 taxable year, and it had $15,000 in AE&P at the beginning of the year. During 2016, Cheesesteak made a $20,000 cash distribution to its shareholders on April 1^st and made another $20,000 distribution on July 1^st.

What amount of the July 1^st distribution should be classified as dividend income to Cheesesteaks shareholders?

1. $2,500
2. $5,000
3. $10,000
4. $12,500
5. $20,000

Facts Applicable to Questions 3-4: Melissa owns 100% of the stock in Fitness Corporation (Fitness), a calendar year corporation. Melissa has an adjusted basis of $25,000 in her stock at the beginning of the current year (2016). Fitness has $60,000 of CE&P for the current year and zero AE&P as of the beginning of the year. With respect to the CE&P of $60,000, $30,000 was earned during the first six months of the year and $30,000 was earned during the last six months of the year. Fitness makes a nonliquidating distribution to Melissa of $40,000 on July 1, 2016.

3. How much of the distribution to Melissa is treated as a dividend?
   1. $30,000
   2. $25,000
   3. $40,000
   4. $0
   5. $20,000
4. What is Fitness AE&P as of the end of 2016?
   1. $30,000
   2. $35,000
   3. $20,000
   4. $60,000
   5. $40,000

Facts Applicable to Questions 5-6: Adrian owns 100% of the stock in Balboa Corporation (Balboa), a calendar year corporation. Adrian has an adjusted basis of $25,000 in her stock as of the beginning of the current year (2016). Balboa has a CE&P deficit of ($10,000) (i.e., negative $10,000) for the current year (2016) and a positive AE&P of $90,000 as of the beginning of the year. Balboa makes a nonliquidating distribution to Adrian of $40,000 on December 31, 2016.

5. How much of the distribution to Adrian is treated as a dividend?
   1. $0
   2. $25,000
   3. $40,000
   4. $15,000
   5. $30,000
6. What is Balboas AE&P at the end of the year (after taking into account the effect of the distribution)?
   1. $80,000
   2. $55,000
   3. $40,000
   4. $65,000
   5. $50,000

Facts Applicable to Questions 7-10: Shrimp Corporation (ShrimpCo) has one shareholder, Bubba, who has a $30,000 basis in his ShrimpCo stock. ShrimpCo makes a nonliquidating distribution to Bubba of land with a basis of $55,000 and a fair market value of $70,000. ShrimpCo has AE&P at the beginning of the year equal to $40,000. Before taking into account the effect of the distribution, ShrimpCo has CE&P for the current year equal to $20,000.

7. How much of the distribution (if any) is treated as a dividend to Bubba?
   1. $60,000
   2. $70,000
   3. $55,000
   4. $35,000
   5. $30,000
8. What basis will Bubba obtain in the land?
   1. $55,000
   2. $60,000
   3. $35,000
   4. $0
   5. $70,000
9. How much gain or loss (if any) is recognized by ShrimpCo on the distribution of land to Bubba?
   1. $0 gain or loss
   2. $20,000 gain
   3. $30,000 gain
   4. $15,000 gain
   5. $40,000 gain
10. What is ShrimpCos AE&P at the end of the year?
    1. $5,000
    2. ($10,000)
    3. $0
    4. ($30,000)
    5. e. $20,000