[donnychristal]

Kent Corp is a calendar year, accrual basis, C Corp. In the current year, Kent made a nonliquidating distribution of property with an adjusted basis of $150,000 and a fair market value of $200,000 to Reed, its sole shareholder. The following information pertains to Kent:

Reed’s basis in Kent stock at Jan 1 $500,000
Accumulated E&P at Jan 1 $125,000
Current E&P, including the effects of this distribution $60,000

What was taxable as dividend income to Reed for the current year?

A. $185,000
B. $200,000

I chose B but the correct answer is A. At first I did not understand why and wanted to post this question here for help. But while I was typing this question, I realized that the current E&P already included the effect of the distribution, which is the $50,000 I added again to the current E&P.

Tricky!!!!!

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