PART 1: Fallout Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2022:Taxable Income $195, 000 Federal Income Tax Liability Paid 45,000 Tax - Exempt Interest Income 5,000Excess of Capital Loss over Capital Gains 1,000 Section 179 Expense elected in 2022 15,000 DividendsReceived from Domestic Corporation (less than 20% owned) 40,000 MACRS Depreciation deduction 18,000Straight-line depreciation using ADS class lives 10,000 Compute E & P for tax year 2022 and go to Part 2PART 2: On December 31st, Fallout Corporation makes a total distribution of $200,000 to it's twoshareholders, who each own 50% of the corporation. At the beginning of the current year, the corporationhas a deficit in accumulated E&P of $(23,000). Using the figure for current E&P that you calculated in part 1,determine the tax treatment of distribution (dividends, return of capital, or capital gain) for the shareholders.(assume each shareholder has adequate basis in the corporation).

Start with taxable income: $195,000Add federal income tax paid: $45,000Add tax-exempt interest…

Answered: determine the tax treatment of…

determine the tax treatment of distribution (dividends, return of capital, or capital gain) for the shareholders. (assume each shareholder has adequate basis in the corporation).

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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