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15) Current E&P does not include A) tax-exempt interest income. 16) Grant Corporation sells land (a noninventory item) with a basis of ,000 for 0,000. 17) Boxer Corporation buys equipment in January of the current year with a seven-year class life for ,000. A) Section 179 property must be expensed ratably over a five-year period when computing E&P. At the time of the distribution, Dixie’s E&P is ,000 and Sally’s basis in her Dixie stock is ,000. Crossroads has earnings and profits of ,000 and Harley’s basis in her stock is ,000.
On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A distribution qualifies as a stock redemption only if it significantly reduces the interest of the shareholder in the corporation.
Shareholders who receive such distributions might recognize ordinary income, capital gain, or no taxable income at all.
The distributing corporation may or may not be required to recognize gain or loss when making the distribution.
Under current law, sections 311(b) and 336(a) of the Code require a corporation that distributes appreciated property to its shareholders to recognize gain determined as if the property were sold to the shareholders for its fair market value.
Additionally, section 631 of the Act added section 337(d) to the Code to permit the Secretary to prescribe regulations that are necessary or appropriate to carry out the purposes of the After the enactment of sections 311(b) and 337(d), the Treasury Department and the IRS became aware of transactions in which taxpayers used a partnership to postpone or avoid completely gain generally required to be recognized under section 311(b).