Corporate nonliquidating distributions problems

Section 316(a) defines dividend as a distribution of property made by a corporation out of its E&P.

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This portion of the distribution reduces Gamma s E&P to zero.

The additional ,000 that each shareholder receives is first treated as a return of capital and then as a capital gain.

Ellen s basis in her stock is ,000, and Bob s basis in his stock is ,000.

Ellen and Bob each recognize ,000 (0.50 ,000) of dividend income.

This chapter addresses distributions made when a corporation is not in the process of liquidating.

It discusses the tax consequences of the following types of distributions: Distributions of cash or other property where the shareholder does not surrender any stock Distributions of stock or rights to acquire stock of the distributing corporation Distributions of property in exchange for the corporation s own stock (i.e., stock redemptions) Chapter C:6 discusses liquidating distributions, and Chapter C:7 discusses distributions associated with corporate reorganizations.The distributing corporation may or may not be required to recognize gain or loss when making the distribution.How the corporation and its shareholders treat distributions for tax purposes depends on not only what the corporation distributes but also the circumstances surrounding the distribution. Was the distribution made in exchange for some of the shareholder s stock?What is the basis of the distributed property, and when does its holding period begin?In addition, the distributing corporation must answer the following two questions: What are the amount and character of gain or loss the corporation must recognize?Distributions exceeding the shareholder s basis are treated as gain from the sale of the stock.