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Determining the tax treatment of the distributions

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Question - Pebble Corporation, an accrual basis taxpayer, has struggled to survive since its formation six years ago. As a result, it has a deficit in accumulated E & P of $340,000 at the beginning of the year. This year, however, Pebble earned a significant profit; taxable income was $240,000. Consequently, Pebble made two cash distributions to Martha, its sole shareholder: $150,000 on July 1 and $200,000 on December 31. The following information might be relevant to determining the tax treatment of the distributions.

Reference no: EM133176985

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