Consequences of a Single Cash Distribution. Clover Corporation is a calendar year taxpayer. Connie owns all of its stock. Her basis for the stock is $10,000. On April 1 of the current (non-leap) year Clover distributes $52,000 to Connie. Determine the tax consequences of the cash distribution in each of the following independent situations: a. Current E&P of $15,000; accumulated E&P of $25,000.
b. Current E&P of $30,000; accumulated E&P of ($20,000).
c. Current E&P of ($73,000); accumulated E&P of $50,000.
d. Current E&P of ($20,000); accumulated E&P of ($15,000).

Following are the responses to the given points:

For a:

Connie will receive a dividend.

out of current E&P and out of accumulated E&P;

 returns capital to Connie, lowering her basis to zero;

The excess   is taxed as a capital gain.

E&P accumulated just at the start of next year would be zero dollars.

For b:

The current E&P yield is a dividend to Connie is

returns capital to Connie, reducing her basis to zero.

The excess  is taxed as a capital gain.

When next year begins, the accumulated E&P deficit is expected to stand at

For c:

On April 1 (in a non-leap year), Clover's accumulated E&P:

.

Therefore, the taxable as a dividend

remaining distribution is taxable as a capital gain and it is used to reduce Connie's stock to zero.

The remaining distribution is taxable as a capital gain.

Starting next year, E&P will have a accumulated deficit pro-rata deficit - dividend - residual deficit].

For d:

Starting with the return of the capital because E&P deficit

 returns of the capital which reduces Connie's basis to zero;

Excess is taxable as per the capital gain that is .

The accumulated E&P deficit at the starting of the next year is Learn more:

the answer is: c.that person might be arrested and deported

filling w-4 form incorrectly usually would rise suspicions from government's auditors. when they notice such mistakes, they would send their teams to investigate the situation further.

if those investigation teams believe that the incorrectness is done on purpose (with malicious intent), that person can be arrested or deported

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