Green Corporation is a calendar-year taxpayer. All of the stock is owned by Evan. His basis for the stock is $35,000. On March 1 (of a non-leap year), Green Corporation distributes $120,000 to Evan. Determine the tax consequences of the cash distribution to Evan in each of the following independent situations:
a) $120,000 is a dividend to Evan.
b) $50,000 is dividend. $35,000 is a return of capital, which reduces Evan's basis to zero. The remaining $35,000 is taxable as a capital gain.
c) Green's accumulated E&P as of March 1 is $28,200 {$40,000 - [$73,000 × (59/365)]}. Therefore, $28,200 is taxable as a dividend. $35,000 is a return of capital and the remaining $56,800 is taxable as a capital gain.
d) $35,000 is a return of capital, which reduces Evan's basis to zero, and the remaining $85,000 is a capital gain.
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