Mia, the sole shareholder of Penguin Corporation, sold her Penguin stock to Sophia on July 30 for $400,000. Mia’s basis in the stock was $300,000 at the beginning of the year. Penguin reported accumulated E & P of $220,000 on January 1 and current E & P of $340,000. During the year, Penguin made the following distributions: $600,000 cash to Mia on July 1 and $200,000 cash to Sophia on December 30.

How are Mia and Sophia taxed on the distributions? How much gain does Mia recognize on the sale of her stock to Sophia?

Gadwall Corporation is a calendar year taxpayer. At the beginning of the current year, Gadwall has accumulated E & P of $350,000. The corporation incurs a current E & P deficit of $400,000 that accrues ratably throughout the year. On September 30, Gadwall distributes $200,000 to its sole individual shareholder, Richard.

If Richard has a basis in his stock of $15,000, how is the distribution taxed to him?


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