In 2017, Appa purchased 20% of the stock in Titan, Corp., a domestic corporation, as an investment
Question:
In 2017, Appa purchased 20% of the stock in Titan, Corp., a domestic corporation, as an investment and is one of 5 shareholders. On December 31,2020, Titan Corp.issues its only dividend distribution of the year of $25,000; $50,000 to each of its 5 shareholders who each have a basis of $10,000 in their stock. At the time of the distribution, Titan Inc. has current E&P of $150,000 and accumulated E&P of $20,000. For the following questions, Appa's taxable income is $30,000
1/ What is the name of rule that allows a deduction to offset this distribution for corporate taxpayers?
2/ For Appa, what is the amount of its deduction from the dividend distribution it received from Titan?
3/ How much of Titan's E&P is allocated to the dividend distribution to its 5 shareholders?
4/ For each shareholder, how much of their dividend distribution is treated as a taxable?
5/ For each shareholder, how much of their dividend distribution is treated as return of capital?
6/ For Appa if cost recovery is up to the extent of its basis in Titan's stock, then what else must Appa report and how much it be characterized?
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer