White Corporation is a calendar-year taxpayer. Wilhelmina owns all of its stock. Her basis for the stock is $25,000. On March 1 of the current year (not a leap year), White Corporation distributes $60,000 to Wilhelmina. Determine the tax consequences of the cash distribution to Wilhelmina in each of the following independent situations:a)Current E&P $15,000, accumulated E&P $50,000.b)Current E&P $25,000, accumulated E&P $(25,000).c)Current E&P ($36,500), accumulated E&P $65,000.d)Current E&P ($10,000), accumulated E&P $(25,000).
What will be an ideal response?
| a) | $60,000 dividend to Wilhelmina; $15,000 out of current E&P and $45,000 out of accumulated |
| b) | $25,000 is a dividend to Wilhelmina; $25,000 is a return of capital that reduces Wilhelmina's |
| c) | White's accumulated E&P as of March 1 (of a nonleap year) is $65,000 - [($36,500/365) × 59] = |
| d) | $25,000 is a return of capital that reduces Wilhelmina's basis to zero; the excess $35,000 is |
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