Reference no: EM132438329

Question - Lawrence owns all the stock of Poncho Corp. The accumulated earnings and profits of Poncho Corp. at the beginning of the year are a deficit of $20,000. The current year's earnings deficit is $30,000. Lawrence's basis for his stock is $250,000. He receives a distribution of $200,000 on the last day of the tax year. How much dividend income and/or capital gain should lawrence report?

a. $0, all a return of capital/basis

b. Dividend income of $30,000 and a capital gain of $20,000

c. Dividend income of $30,000 and a capital gain of $0

d. Dividend income of $0 and a capital gain of $50,000

e. None of these