This year Sooner Company reports current EP of negative 3200

This year, Sooner Company reports current E&P of negative $320,000. Its accumulated E&P at the beginning of the year was $280,000. Sooner distributed $560,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $82,500. a.How much of the distribution is treated as a dividend to Boomer? b. What is Boomer’s tax basis in his Sooner stock after the distribution? c.What is Sooner’s balance in accumulated E&P on the first day of next year?

Solution

Ans a) Dividend $121,315 ANS Calculation of dividend Accumulated E & P -(Current E & P *181/365) 280000-(320000*181/365) $121,315 b) Tax basis in his Sooner stock is $0 Beginning tax basis -lesser of excess of accumulated E & P or his basis in Sooner stock $82500 Beginning tax basis $82,500 Lesseer of (560000-121315)=438685 82500 or $82500 Hence tax bais is $0 c) Balance of E & P on first day of next year $161,315 Accumulated E & P $280,000 Current year deficit -320000 Dividend paid ($121,315) ($161,315) If any doubt please comment