Yellow Corporation has a deficit in accumulated E & P of $600,000 and has a current E & P of $450,000. On July 1, Yellow distributes $500,000 to its sole shareholder, Eugene, who has a basis in his stock of $105,000. As a result of the distribution, Eugene has: A. dividend income of $450,000 and no adjustment to stock basis. B. dividend income of $105,000 and reduces his stock basis to zero. C. dividend income of $450,000 and reduces his stock basis to $55,000. D. no dividend income reduces his stock basis to zero and has a capital gain of $500,000. E. None of the above.
Yellow Corporation has a deficit in accumulated E & P of $600,000 and has a current E & P of $450,000. On July 1, Yellow distributes $500,000 to its sole shareholder, Eugene, who has a basis in his stock of $105,000. As a result of the distribution, Eugene has: A. dividend income of $450,000 and no adjustment to stock basis. B. dividend income of $105,000 and reduces his stock basis to zero. C. dividend income of $450,000 and reduces his stock basis to $55,000. D. no dividend income reduces his stock basis to zero and has a capital gain of $500,000. E. None of the above.
Chapter22: S Corporations
Section: Chapter Questions
Problem 19CE
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Transcribed Image Text:Yellow Corporation has a deficit in accumulated E & P of $600,000 and has a
current E & P of $450,000. On July 1, Yellow distributes $500,000 to its sole
shareholder, Eugene, who has a basis in his stock of $105,000. As a result of
the distribution, Eugene has:
A. dividend income of $450,000 and no adjustment to stock basis.
B. dividend income of $105,000 and reduces his stock basis to zero.
C. dividend income of $450,000 and reduces his stock basis to $55,000.
D. no dividend income reduces his stock basis to zero and has a capital gain
of $500,000.
E. None of the above.
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