Distribution for the current year

Reference no: EM13121510

Magenta Corporation is a calendar year corporation. Magenta Corporation had $25,000 in Accumulated Earnings And Profits (AE&P) at the beginning of the current year. For the current tax year, Magenta Corporation had a Deficit in its Current Earnings And Profits (CE&P) of ($45,000) (before any distributions). Magenta Corporation also distributed $60,000 to its sole shareholder, Chuck, on November 30 of the current year. As a result of the distribution, which of the following is the correct regarding how Chuck should treat the distribution for the current year?

(a) $60,000 of Dividend Income.

(b) $35,000 of Dividend Income and $25,000 (Tax-Free) Recovery Of Capital.

(d) The distribution has no effect on Chuck in the current year.

Reference no: EM13121510

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