Shrimp Corporation (“ShrimpCo”) has one shareholder, Bubba, who has a $30,000 basis in his ShrimpCo stock. ShrimpCo makes a nonliquidating distribution to Bubba of land with a basis of $55,000 and a fair market value of $70,000. ShrimpCo has AE&P at the beginning of the year equal to $40,000. Before taking into account the effect of the distribution, ShrimpCo has CE&P for the current year equal to $20,000.

1.            How much of the distribution (if any) is treated as a dividend to Bubba?

a.            $60,000

b.            $70,000

c.             $55,000

d.            $35,000

e.            $30,000

2.            What basis will Bubba obtain in the land?

a.            $55,000

b.            $60,000

c.             $35,000

d.            $0

e.            $70,000

3.            How much gain or loss (if any) is recognized by ShrimpCo on the distribution of land to Bubba?

a.            $0 gain or loss

b.            $20,000 gain

c.             $30,000 gain

d.            $15,000 gain

e.            $40,000 gain

4.            What is ShrimpCo’s AE&P at the end of the year?

a.            $5,000

b.            ($10,000)

c.             $0

d.            ($30,000)

e.            $20,000

Answer rating: 100% (QA)

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