Sunapee Corporation reported taxable income of $700,000 from operations for 20X3. During the year, the company made a distribution of land to its sole shareholder, Jean McCarthy. The land's fair market value was $125,000 and its tax and E&P basis to Sunapee was $75,000. Jean assumed a mortgage attached to the land of $25,000. Sunapee's tax rate is 21 percent. Compute Sunapee's total taxable income and federal income tax paid because of the distribution. Using your solution, compute Sunapee's current E&P for 20X3.
What will be an ideal response?
Taxable income of $750,000, federal income tax of $157,500, and current E&P of $592,500.
| Taxable income from operations | $ | 700,000 | |
| Gain on distribution of land ($125,000 ? $75,000) | 50,000 | ||
| Total taxable income | $ | 750,000 | |
| Federal income tax ($750,000 × 21%) | (157,500 | ) | |
| Taxable income | $ | 750,000 | |
| Subtract: | |||
| Federal income tax | (157,500 | ) | |
| Current E&P | $ | 592,500 | |
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