Cerulean Corporation has two equal shareholders, Marco and Avery. Marco acquired his Cerulean stock three years ago by transferring property worth $700,000 (basis of $300,000) for 70 shares of the stock. Avery acquired 70 shares in Cerulean Corporation two years ago by transferring property worth $660,000 (basis of $110,000). Cerulean Corporation's accumulated E & P as of January 1 (current year) is $350,000. On March 1 of the current year, the corporation distributed to Marco property that is worth $120,000, with a basis to Cerulean of $50,000. It distributed cash of $220,000 to Avery. On July 1 of the current year, Avery sold her stock to Harpreet for $820,000. On December 1 of the current year, Cerulean distributed cash of $90,000 each to Harpreet and Marco. Regarding this tax situation, classify each of the following as "Yes" a relevant tax issue or "No" not a tax issue. What basis do Marco and Avery have in their stock in Cerulean Corporation after their initial transfers for stock? b. C. d. f. 9. Does Avery's transfer qualify under 5 351 of the Code as a nontaxable exchange? How do the distributions to Marco and to Avery affect Cerulean's E & P? What is Avery's basis in her stock when she sells it to Harpreet? How are Marco and Harpreet taxed on the $90,000 distribution to each? How much of the distribution is currently deductible by the corporation? How is Cerulean Corporation taxed on the property distribution to Marco?
Cerulean Corporation has two equal shareholders, Marco and Avery. Marco acquired his Cerulean stock three years ago by transferring property worth $700,000 (basis of $300,000) for 70 shares of the stock. Avery acquired 70 shares in Cerulean Corporation two years ago by transferring property worth $660,000 (basis of $110,000). Cerulean Corporation's accumulated E & P as of January 1 (current year) is $350,000. On March 1 of the current year, the corporation distributed to Marco property that is worth $120,000, with a basis to Cerulean of $50,000. It distributed cash of $220,000 to Avery. On July 1 of the current year, Avery sold her stock to Harpreet for $820,000. On December 1 of the current year, Cerulean distributed cash of $90,000 each to Harpreet and Marco. Regarding this tax situation, classify each of the following as "Yes" a relevant tax issue or "No" not a tax issue. What basis do Marco and Avery have in their stock in Cerulean Corporation after their initial transfers for stock? b. C. d. f. 9. Does Avery's transfer qualify under 5 351 of the Code as a nontaxable exchange? How do the distributions to Marco and to Avery affect Cerulean's E & P? What is Avery's basis in her stock when she sells it to Harpreet? How are Marco and Harpreet taxed on the $90,000 distribution to each? How much of the distribution is currently deductible by the corporation? How is Cerulean Corporation taxed on the property distribution to Marco?
Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations
Section: Chapter Questions
Problem 28P
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Transcribed Image Text:Cerulean Corporation has two equal shareholders, Marco and Avery. Marco acquired his Cerulean stock three years ago by
transferring property worth $700,000 (basis of $300,000) for 70 shares of the stock. Avery acquired 70 shares in Cerulean
Corporation two years ago by transferring property worth $660,000 (basis of $110,000). Cerulean Corporation's accumulated E & P
as of January 1 (current year) is $350,000. On March 1 of the current year, the corporation distributed to Marco property that is
worth $120,000, with a basis to Cerulean of $50,000. It distributed cash of $220,000 to Avery. On July 1 of the current year, Avery
sold her stock to Harpreet for $820,000. On December 1 of the current year, Cerulean distributed cash of $90,000 each to Harpreet
and Marco.
Regarding this tax situation, classify each of the following as "Yes" a relevant tax issue or "No" not a tax issue.
What basis do Marco and Avery have in their stock in Cerulean Corporation after their initial
transfers for stock?
b.
C.
d.
f.
9.
Does Avery's transfer qualify under 5 351 of the Code as a nontaxable exchange?
How do the distributions to Marco and to Avery affect Cerulean's E & P7
What is Avery's basis in her stock when she sells it to Harpreet?
How are Marco and Harpreet taxed on the $90,000 distribution to each?
How much of the distribution is currently deductible by the corporation?
How is Cerulean Corporation taxed on the property distribution to Marco?
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