Question

Badger Corporation was incorporated in the current year. It reports an $8,000 NOL on its initial tax return. Badger distributed $2,500 to its shareholders. Is it possible for this distribution to be taxed as a dividend to Badger's shareholders? Explain.A.Yes. The taxable loss must first be adjusted to compute current E&P which would need to be at least $2,500 for this to be considered to be a dividend.B.Yes. The taxable loss must first be adjusted to compute current E&P which would need to be at least $10,500 for this to be considered to be a dividend.C.No. The taxable loss of $8,000 exceeds the distribution amount of $2,500, so the distribution would be a return of capital.D.No. The taxable loss must first be adjusted to include accumulated E&P. The adjustment needs to be at least $8,000 to avoid a taxable loss but would still be deemed a return of capital.

Answer 1

A. Yes. The taxable loss must first be adjusted to compute current​ E&P which would need to be at least​ $2,500 for this to be considered to be a dividend.

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