[nalratoss]

So the background of this question involves shareholder treatment of distribution from corporation.

Corporation distributed $90,000 when E&P are $60,000. Shareholder N receives $30,000 of the distribution, of which $20,000 is a dividend (2/3).

Block 1
Number of shares #1000
Basis $3,000
Dividend $10,000
Capital Recovery $3,000
Gain $2,000

Block 2
#of shares: #1,000
Basis $15,000
Dividend $10,000
Capital recovery: $5,000
Gain: 0

Why on the second block, the capital recovery amount does not equal the basis?
The gain seems to be calculated by using the total dividend to subtract the total basis, then why the gain is allocated to block 1 entirely?

Overall this example further confuses me with how excess dividend is divided amount capital recovery and gain on sale.

[Lara]

Distribution was allocated based on number of shares so both blocks get $15,000 each distribution of which $10,000 are dividend to each.

Block 1 basis is only $3,000 so capital recovery is limited to $3,000 and $2,000 to be taxed as gain.

Block 2 has $15,000 basis so the $5,000 can be fully offset.

[Author]

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