1. Goose company, with E&P of $40,000, makes a distribution of $50,000 to a shareholder. The shareholders basis in the Goose stock is $20,000. If the distribution is not a qualifying stock redemption or in complete liquidation, the shareholders recognizes dividend income of $40,000 (the amount of Goose's E & P) and treats the remaining $10,000 of the distribution as a return of capital (i.e., stock basis is reduced to $10,000).
2. If the distribution is a qualifying stock redemption oi is pursuant a complete liquidation, the shareholder has a capital gain of $30,000 ($50,000 distribution-$20,000 stock basis). In the case of these distributions , Goose's E &P does not affect the shareholder's tax return.

Prepare a memo to the tax files to address the IRS’s determination.

Answer rating: 100% (QA)

To Tax Files From Your Name Subject Treatment of Distribution from Goose Company Date Date Backgroun... View the full answer