Question

Volunteer Corporation reported taxable income of $415,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Rocky Topp. The land’s fair market value was $91,000 and its tax and E&P basis to Volunteer was $72,000. Rocky assumed a mortgage attached to the land of $18,200. Any gain from the distribution will be taxed at 21 percent. The company had accumulated E&P of $790,000 at the beginning of the year.

a. Compute Volunteer’s total taxable income and federal income tax.

b. Compute Volunteer's current E&P.
c. Compute Volunteer’s accumulated E&P at the beginning of next year.
d. What amount of dividend income does Rocky report as a result of the distribution?
e. What is Rocky’s income tax basis in the land received from Volunteer?

Answer 1