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4 August, 01:25

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:

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  1. 4 August, 04:29
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    Sam's dividend income is $225,000 and has a reduction of stock basis of $27,500

    Explanation:

    From the example,

    Given that,

    Sam stock is = $52.500

    Blue corporation has deficit in accumulated E and P which is = $300,000

    Blue corporation has current E and P of = $225,000

    Blue distributes $250,000 to its shareholder on July 1st

    Therefore,

    Blue corporation has a current E & P of $225,000, to an extent, Sam has a taxable dividend. The remaining $25,000 reduces his basis stock.

    Sam has an income dividend of $225,000 and reduces his stock basis to $27,500.
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