Reference no: EM132218472

Question: Assumptions: Use a flat corporate tax rate of 21% for all problems. Assume a tax rate of 15% for all dividends and capital gains.

Assume there is no Alternative Minimum Tax for these problems.

Assume that all entities are US domestic corporations, taxed under Subchapter C of the IRC unless otherwise noted the internal revenue code.

1. Ocean Corporation has two equal shareholders - Moana and Maui. At January 1 2018 Moana and Maui each have a basis in the corporation of $100,000. During 2018 Ocean Corporation had the following items of income (before considering any distributions):

Gross Receipts 200,000

Non-deductible expenses (30,000)

Other operating expenses (100,000) (Assume all deductible)

Book Income 70,000

On March 1, Ocean Corporation distributed cash of $50,000 to each Moana and Maui (total distributions of $100,000). On June 1 Moana sold all her stock in Ocean Corporation to Pua for $200,000. On September 1 Maui Corporation made another cash distribution of $50,000 to Pua and distributed property to Maui with a fair market value (FMV) of $50,000, and a basis of $40,000 (total FMV of all September 1 distributions was $100,000).

At January 1, 2018, Ocean corporation had $100,000 in accumulated earnings and profits.

A. What is Ocean's taxable income for 2018?

B. What is Ocean's current earnings and profits for 2018?

C. What are the tax consequences to Moana as a result of the March 1 distribution?

D. What are the tax consequences to Moana as a result of the June 1 sale?

E. What are the tax consequences to Maui as a result of the September 1 distribution?

F. What are the tax consequences to Pua as a result of the September 1 distribution?

G. What is Ocean's accumulated earnings and profits at January 1, 2019?