Thunder accumulated Earnings and Profits for 2018
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Thunder accumulated Earnings and Profits for 2018
Question Description
Thunder Incorporated has issued 2000 shares of one class of common stocks. These shares are outstanding throughout 2018 and are owned as follows:
Isaac Newton–800 shares, Ben Newton (son of Isaac)–400 shares, Mary Newton (daughter of Isaac)–400 shares, Sam Melvin–400 shares, for a total of 2000 shares.
Thunder Incorporated’s reported current Earnings and Profit of $600,000 in 2018, and accumulated Earnings and Profits of $1,000,000 at the beginning of 2018. The corporation made the following distributions to its shareholders:
03/31/2018: It distributed $20/share to each shareholder or $40,000 in total ($20 x 2000).
06/30/2018: It bought back 400 shares of Isaac’s stock for $400,000 with a corresponding basis at the time of $200,000.
09/30/2018: Redeemed 120 shares of Sam’s stock for $120,000 with a basis of $72,000 for all 120 shares.
12/21/2018: It distributed $20/share to each shareholder for a total of ($29,600 in total).
Requirements:
Determine the tax treatment of each distribution above as either a dividend distribution, an exchange, or return of capital. Explain the tax rule that justifies and supports the determination made for each distribution.
Calculate Thunder Inc.’s accumulated Earnings & Profits at December 31, 2018.
Isaac is planning to retire and would like to sell all his shares to the corporation for $200,000 and a 10-year note with a fair market value of $600,000.
Explain what Isaac and the corporation must do and consider to be sure that the sale or redemption of his shares is treated as an exchange.
Could Joe become or stay as a consultant to the company? Justify your position using the most recent tax law provisions.
The attorney’s fees affecting the disposal of Isaac’s shares were $10,000, could these fees be deductible expenses for the corporation for tax purposes? Please support your position using current tax law or other industry and scholarly sources.
RUBRIC
Excellent Quality
95-100%
Introduction 45-41 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Literature Support
91-84 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Methodology
58-53 points
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score
50-85%
40-38 points
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
83-76 points
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
52-49 points
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality
0-45%
37-1 points
The background and/or significance are missing. No search history information is provided.
75-1 points
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
48-1 points
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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Thunder accumulated Earnings and Profits for 2018