Corporate Taxation questions

1. How does a corporation compute earnings and profits (E&P)? What income is deferred to a later year when computing taxable income but is included in E&P in the current year? What deductions are allowed for taxable income purposes but denied for E&P?

2. Distinguish between current and accumulated earnings and profits. Why is it important to make this distinction?

3. The corporation owns a building with a $160,000 adjusted basis and $120,000 fair market value. The company has earnings and profits of $200,000. Is it more advantageous for the company to sell the property and distribute the sales proceeds to its shareholders or distribute the property to its shareholders and let them sell the property? Why? If you were a shareholder, what would be most advantageous to you?

4. What is a stock redemption? What are some reasons for redeeming stock? Why are some redemptions treated as sales and others as dividends?

 

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