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Longhorn Company reports current E&P of $170,000 in 20X3 and accumulated E&P at the beginning of the year of negative $340,000
Longhorn Company reports current E&P of $170,000 in 20X3 and accumulated E&P at the beginning of the year of negative $340,000. Longhorn distributed $510,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in his stock in Longhorn is $170,000. How is the distribution treated by the shareholder in 20X3?
Expert Solution
Accumulated E&P at beginning -340,000
Current E&P is $170,000
Distributed $510,000 to sole shareholder on January 1, 20X3
Shareholder tax basis is $170,000
Shareholder will treat $510,000 as follows:
Now as the current E&P is 170,000
so out of 510,000 , $170,000 will be treated as dividend and $170,000 as tax free return of basis and remaining 170,000 will be capital gain.
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