For the current year, Water reports and $80,000 long-term capital loss and no capital gains.
Taxable income includes $80,000 of dividends from a 10%-owned domestic corporation.
Water paid fines and penalties of $6,000 that were not deducted in computing taxable income.
In computing this year’s taxable income, Water deducted a $20,000 NOL carryover from a prior tax year.
Water claimed a $10,000 U.S. production activities deduction.
Taxable income includes a deduction for $40,000 of depreciation that exceeds the depreciation allowed for E&P purposes.
Assume a 34% …show more content…
What are the tax consequences to Checker and to Bailey (an individual) if Bailey surrenders all her stock in a redemption qualifying for sale treatment?
Sale Exception: If the redemption meets specific requirements, the distribution amount received by the shareholder is offset by the adjusted basis of the shares surrendered. The difference generally is treated as a capital gain or loss. No basis adjustment occurs.
Gain/Loss Recognition: Under the sale exception, the corporation recognizes gain (but not loss) as though it has sold distributed noncash property for its FMV immediately before redemption.
Earnings and Profits Adjustment: For a redemption treated as a sale, E&P is reduced by the portion of current and accumulated attributable to the redeemed stock. Any distribution amount exceeding this portion reduces the corporation’s paid-in capital.
In Part c, what would be the tax consequences if Bailey were a corporation?