Blue Corporation has a deficit in accumulated E & P of $300,000 and has current E & P of $225,000. On July 1, Blue distributes $250,000 to its sole shareholder, Sam, who has a basis in his stock of $52,500. As a result of the distribution, Sam has: Oa. Dividend income of $52,500 and reduces his stock basis to zero. Ob. Dividend income of $225,000 and no adjustment to stock basis. Oc. No dividend income, reduces his stock basis to zero, and has a capital gain of $250,000. Od. Dividend income of $225,000 and reduces his stock basis to $27,500. e. None of these choices are correct.
Blue Corporation has a deficit in accumulated E & P of $300,000 and has current E & P of $225,000. On July 1, Blue distributes $250,000 to its sole shareholder, Sam, who has a basis in his stock of $52,500. As a result of the distribution, Sam has: Oa. Dividend income of $52,500 and reduces his stock basis to zero. Ob. Dividend income of $225,000 and no adjustment to stock basis. Oc. No dividend income, reduces his stock basis to zero, and has a capital gain of $250,000. Od. Dividend income of $225,000 and reduces his stock basis to $27,500. e. None of these choices are correct.
Chapter22: S Corporations
Section: Chapter Questions
Problem 19CE
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Transcribed Image Text:Blue Corporation has a deficit in accumulated E & P of $300,000 and has current E & P of $225,000.
On July 1, Blue distributes $250,000 to its sole shareholder, Sam, who has a basis in his stock of
$52,500. As a result of the distribution, Sam has:
Oa. Dividend income of $52,500 and reduces his stock basis to zero.
Ob. Dividend income of $225,000 and no adjustment to stock basis.
Oc. No dividend income, reduces his stock basis to zero, and has a capital gain of $250,000.
Od. Dividend income of $225,000 and reduces his stock basis to $27,500.
Oe. None of these choices are correct.
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