Ninja MCQ 1307, Becker MCQ 02092
Kent Corp. is a calendar-year, accrual-basis, C corporation. 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 January 1 $500,000
Accumulated earnings and profits at
January 1 125,000
Current earnings and profits, including
the effects of this distribution 60,000
What was taxable as dividend income to Reed for the current year?
A.
$60,000
B.
$150,000
C.
$185,000
Incorrect D.
$200,000
Becker has $200,000 as the correct answer and Ninja has $185,000 as the correct answer.
Ninja explanation:
When a corporation makes a nonliquidating distribution of property to a sole shareholder, it is considered a dividend.
Accumulated earnings and profits at January 1 $125,000
Plus the current earnings and profits 60,000
Total earnings and profits and maximum taxable dividend $185,000
========
The taxable dividend income to Reed for the current year is $185,000, which is 100% of the earnings and profits of the corporation.
Becker explanation:
A dividend paid in property other than money is taxable to an individual taxpayer to the extent of the property's FMV, but not in excess of the current and the accumulated earnings and profits of the distributing corporation. In this case, the FMV of the dividend is $200,000. It is taxable to the extent that Kent had current earnings $60,000 plus accumulated earnings and profit $125,000 plus any gain generated on the distribution $50,000, thus the dividend is taxable to the extent of $200,000
So, what is taxable as dividend income to Reed?
.