Volunteer Corporation reported taxable income of $500,000 from operations for this year. During the year, the company

Question:

Volunteer Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of land to its sole shareholder, Rocky Top p. The land’s fair market value was $75,000 and its tax and E&P basis to Volunteer was $25,000. Rocky assumed a mortgage attached to the land of $15,000. Any gain from the distribution will be taxed at 21 percent. The company had accumulated E&P of $750,000 at the beginning of the year.

a. Compute Volunteer’s total taxable income and federal income tax.

b. Compute Volunteer’s current E&P.

c. Compute Volunteer’s accumulated E&P at the beginning of next year.

d. What amount of dividend income does Rocky report as a result of the distribution?

e. What is Rocky’s income tax basis in the land received from Volunteer?

Corporation
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