1) Rose Corporation, a calendar-year corporation, had accumulated earnings and profits of $40,000 as of January 1, Year 1. However, for the first 6 months of Year 1, Rose Corporation had an operating loss of ($36,000) and finished the year with a total net operating loss for tax Year 1 of ($55,000). Rose Corporation distributed $15,000 to its shareholders on July 1, Year 1. Which of the following is true?
a. The entire distribution of $15,000 is taxable.
b. The entire distribution is not taxable.
c. The part of the distribution that is taxable is $12,500.
d. The part of the distribution that is taxable is $14,000.
Use the following to answer #3 below:
In January of the current year, Joan Hill bought one share of Orban Corporation stock for $300. On March 1 of this year, Orban distributed one share of a new class of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1 of the year, Joan’s one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150.