Reference no: EM132406904

Question

CSU, Inc., is a calendar year S corporation. CSU's Form 1120S shows nonseparately stated ordinary income of $120,000 for the year. Taewon owns 30% of the CSU stock throughout the year. The following information is obtained from the corporate records.

Tax-exempt interest income $ 4,500

Salary paid to Taewon(78,000)

Charitable contributions (9,000)

Dividends received from a non-U.S. corporation 7,500

Short-term capital loss (9,000)

Depreciation recapture income 16,500

Refund of prior state income taxes 7,500

Cost of goods sold ($108,000)

Long-term capital loss (10,500)

Administrative expenses (27,000)

Long-term capital gain 21,000

Selling expenses (16,500)

Taewon's beginning stock basis 48,000

Taewon's additional stock purchases 13,500

Beginning AAA 46,500

Taewon's loan to corporation 30,000

Assume all facts remain the same and CSU had previously been a C corporation and had 60,000 of E&P. Show the effect, if any, of the distribution on Taewon's stock basis, ending AAA, ending E&P. Show also the taxability, if any, of the distribution to Taewon.

HINT: calculate the allocation of AAA to Taewon for distribution computations, even though AAA is a corporate account.