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QUESTION
On January 1, Cotton Candy Corporation (a calendar year taxpayer) has accumulated E amp; P of $400,000. Its current E amp; P for the year is...
On January 1, Cotton Candy Corporation (a calendar year taxpayer) has accumulated E & P of $400,000. Its current E & P for the year is $120,000 (before considering dividend distributions). During the year, Cotton Candy distributes $800,000 ($400,000 each) to its equal shareholders, Mary and Larry. Mary has a basis in her stock of $95,000, while Larry’s basis is $160,000. What is the effect of the distribution by Cotton Candy Corporation on Mary and Larry?
