Question

Husker Corporation reports current E&P of negative $200,000 in 20X3 and accumulated E&P at the beginning of the year of $300,000. Husker distributed $200,000 to its sole shareholder on December 31, 20X3. The shareholder's tax basis in her stock in Husker is $50,000. How is the distribution treated by the shareholder in 20X3?

Answer 1

Given that,

Current E&P = (-$200,000)

Accumulated E&P at the beginning of the year = $300,000

Distributed to his sole shareholders = $200,000

shareholder's tax basis = $50,000

As the ending accumulated E&P = $300,000 - $200,000

= $100,000

So, $100,000 would be treated as Dividend.

$50,000 would be treated as Tax free return of basis and the Balance $50,000 would be the capital gain for shareholder of Husker.