How is the distribution taxed to the shareholders

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Question - Jade Corporation merged into Fluorite Corporation 2 years ago. At the time of the merger, Jade had an E & P deficit of $350,000 and Fluorite had a positive E & P of $300,000. The prior 2 years have resulted in a positive E & P of $100,000. Despite having a negative E & P of $30,000 for the year, Fluorite makes a distribution to its shareholders of $370,000. How is the distribution taxed to the shareholders?

a. $370,000 treated as a return of capital

b. $20,000 taxed as a dividend and $350,000 treated as a return of capital

c. $300,000 taxed as a dividend and $70,000 treated as a return of capital

d. $370,000 taxed as a dividend

e. None of the above

Reference no: EM131872412

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