ACC610DiscussionsWeek 2 - Discussion 1- Characterizing the Distribution

Week 2 - Discussion 1

Could you make up and answer your question using the following information?

Bob owns 100% of the stock of XYZ corporation. Bob’s tax basis in XYZ corporation as of January 1, 2015, is _$300__. As of December 31, 2014, XYZ had accumulated E&P of _$500__. During 2015, XYZ earns a current E&P of _$500__. On _December 31_ 2015, XYZ makes a distribution of _$1000______ to Bob.

• How is the distribution characterized (i.e., how much is a dividend, how much is a return of capital, how much is a capital gain)?

1. For the year 2015, XYZ gave Bob a total of $1,000.
2. XYZ had accrued $500 in income by year’s end of 2015
3. If Bob received a $500 dividend and a $300 return of capital, his stock basis would be reduced to zero.
4. Any remaining $200 after that would be deemed a capital gain.

• What is Bob’s tax basis in XYZ corporation after the distribution?

When distributed, a $300 tax basis is reduced to $0 by the same amount in return for capital.