Law question data bank Law question data bank Question 394. Distributions by a corporation to its shareholders are presumed to be a return of capital unless the parties can prove otherwise. a. True b. False Save your time! Proper editing and formatting Free revision, title page, and bibliography Flexible prices and money-back guarantee ORDER NOW 395. A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation’s E & P. a. True b. False Make sure you submit a unique essay Our writers will provide you with an essay sample written from scratch: any topic, any deadline, any instructions. 100% ORIGINAL ORDER NOW 396. 3 Distributions that are not dividends are a return of capital and decrease the shareholder’s basis. Once basis is reduced to zero, any excess is taxed as a capital gain. a. True b. False 397. 4 Cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will be taxed as dividend income. a. True b. False 398. 5 A distribution in excess of E & P is treated as capital gain by shareholders. a. True b. False 399. 6 The terms “earnings and profits” and “retained earnings” are identical in meaning. a. True b. False 400. 7 To determine E & P, some (but not all) previously excluded income items are added back to taxable income. a. True b. False 401. 8 When computing E & P, taxable income is not adjusted for additional first-year depreciation. a. True b. False 402. 9 When computing current E & P, taxable income is not adjusted for the deferred gain in a § 1031 like-kind exchange. a. True b. False 403. CHAPTER 5—10 An increase in the LIFO recapture amount must be added to taxable income to determine E & P. a. True b. False 404. CHAPTER 5—11 Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment. a. True b. False 405. CHAPTER 5—12 When a corporation makes an installment sale, for E & P purposes the realized gain is recognized in the year of sale. a. True b. False 406. CHAPTER 5—13 A corporation borrows money to purchase State of Texas bonds. The interest on the loan has no impact on either taxable income or current E & P. a. True b. False 407. CHAPTER 5—14 Federal income tax paid in the current year must be subtracted from taxable income to determine E & P. a. True b. False 408. CHAPTER 5—15 When computing E & P, an adjustment to taxable income is necessary for any domestic production activities deduction. a. True b. False 409. CHAPTER 5—16 Nondeductible meal and entertainment expenses must be subtracted from taxable income to determine current E & P. a. True b. False 410. CHAPTER 5—17 The dividends received deduction is added back to taxable income to determine E & P. a. True b. False 411. CHAPTER 5—18 A realized gain from an involuntary conversion under § 1033 that is not recognized for income tax purposes has no effect on E & P. a. True b. False 412. CHAPTER 5—19 In the current year, Pink Corporation has a § 179 expense of $80,000. As a result, next year, taxable income must be decreased by $16,000 to determine current E & P. a. True b. False 413. CHAPTER 5—20 Any loss in current E & P must be treated as occurring ratably during the year. a. True b. False 414. CHAPTER 5—21 When current E & P has a deficit and accumulated E & P is positive, the two accounts are netted at the date of the distribution. If a positive balance results, the distribution is a dividend to the extent of the balance. a. True b. False 415. CHAPTER 5—22 When current E & P is positive and accumulated E & P has a deficit balance, the two accounts are netted for dividend determination purposes. a. True b. False 416. CHAPTER 5—23 Regardless of any deficit in current E & P, distributions during the year are taxed as dividends to the extent of accumulated E & P. a. True b. False 417. CHAPTER 5—24 Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise. a. True b. False 418. CHAPTER 5—25 Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years. a. True b. False 419. CHAPTER 5—26 Dividends taxed as ordinary income are considered investment income for purposes of the investment interest expense limitation. a. True b. False 420. CHAPTER 5—27 Certain dividends from foreign corporations can be qualified dividends for purposes of the 15% rate available to individuals. a. True b. False 421. CHAPTER 5—28 During the year, Blue Corporation distributes land to its sole shareholder. If the fair market value of the land is less than its adjusted basis, Blue will recognize a loss on the distribution. a. True b. False 422. CHAPTER 5—29 In certain circumstances, the amount of dividend income recognized by a shareholder from a property distribution is not reduced by the amount of liability assumed by a shareholder. a. True b. False 423. CHAPTER 5—30 Property distributed by a corporation as a dividend is subject to a liability in excess of its basis. For purposes of determining gain on the distribution, the basis of the property is treated as being not less than the amount of liability. a. True b. False 424. CHAPTER 5—31 A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property. a. True b. False 425. CHAPTER 5—32 Under certain circumstances, a distribution can generate (or add to) a deficit in E & P. a. True b. False 426. CHAPTER 5—33 Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law. a. True b. False 427. CHAPTER 5—34 Constructive dividends have no effect on a distributing corporation’s E & P. a. True b. False 428. CHAPTER 5—35 If a stock dividend is taxable, the shareholder’s basis in the newly received shares is equal to the fair market value of the shares received in the distribution. a. True b. False 429. CHAPTER 5—36 A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution. a. True b. False 430. CHAPTER 5—37 If a distribution of stock rights is taxable and their fair market value is less than 15 percent of the value of the old stock, then either a zero basis or a portion of the old stock basis may be assigned to the rights, at the shareholder’s option. a. True b. False 431. CHAPTER 5—38 A pro rata distribution of nonconvertible preferred stock to common shareholders is not generally taxable. a. True b. False 432. CHAPTER 5—39 The rules used to determine the taxability of stock dividends also apply to distributions of stock rights. a. True b. False 433. 394. Distributions by a corporation to its shareholders are presumed to be a return of capital unless the parties can prove otherwise. a. True b. False