Advanced Taxation

Topic: Corporate Distributions

***Note*** For some of these problems, there is no “right” or “wrong” answer. I am looking for a few sentences on your thought process why you came up with the response you did.

Problem 1. 

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XYZ Corp., a Delaware corporation, earned $100,000 in profits in 2021. To reward shareholders, the board of directors declared and paid a $1 distribution per share to each of its shareholders.

  1. Jodi K. owns 10% of the shares of XYZ Corp. and receives a distribution of $10,000. What is the U.S. tax on Jodi K.’s distribution from XYZ Corp.?
  2. ABC Corp., a New York corporation, owns 10% of the shares of XYZ Corp. and receives a distribution of $10,000. What is the U.S. tax on ABC Corp.’s distribution from XYZ Corp.?

Problem 2. 

SAB Corp., a Delaware corporation, lost an accumulated $100,000 prior to 2021. In 2021, it earned $50,000 in profits. To reward shareholders, the board of directors declared and paid a $1 distribution per share to each of its shareholders. Larry G. owns all of the shares of SAB Corp. and receives a distribution of $70,000. The adjusted tax basis in Larry’s shares is $100,000. What is the U.S. tax on Larry’s distribution from SAB Corp.?

Problem 3.

Top. Inc., a New York corporation, is in the process of being liquidated. Top Inc. has two shareholders: (i) GEF Corp., a Delaware corporation, which owns 90% of the stock ($9,000 basis), and (ii) Harriet R, who owns 10% of the stock ($1,000 basis). After selling almost of all its assets, Top Inc. distributes cash ($100,000 total) to its shareholders. GEF Corp. receives $90,000 and Harriet receives $10,000.

  1. What is the U.S. tax on to GEF on the liquidation of Top Inc.?
  2. What is the U.S. tax on to Harriet on the liquidation of Top Inc.?

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