MacLeod Corporation

o Compare the tax consequences to the shareholder and the distributing corporation of the following three kinds of corporate distributions: ordinary dividends, stock redemptions, and complete liquidations. Include some discussion as to how corporate E&P is affected.

o Griffin Corporation reports $400,000 of taxable income for the current year. The following additional information is available:
•For the current year, Griffin reports an $80,000 long-term capital loss and no capital gains.
•Taxable income includes $80,000 of dividends from a 10%-owned domestic corporation.
•Griffin paid fines and penalties of $6,000 that were not deducted in computing taxable income.
•In computing this year’s taxable income, Griffin deducted a $20,000 NOL carryover from a prior tax year.
•Griffin claimed a $10,000 U.S. production activities deduction.
•Taxable income includes a deduction for $40,000 of depreciation that exceeds the depreciation allowed for E&P purposes. Required: Assume a 34% corporate tax rate. What is Griffin’s current E&P for this year?

Nash is one of three equal unrelated shareholders of MacLeod Corporation. Nash has held MacLeod stock for four years and has a basis in his stock of $50,000. MacLeod has $300,000 of current and accumulated E&P and distributes $100,000 to Nash.
a. What are the tax consequences to MacLeod and to Nash if Nash is an individual and the distribution is treated as a dividend?

b. In Part a, what would be the tax consequences if Nash were a corporation?

c. What are the tax consequences to MacLeod and to Nash (an individual) if Nash surrenders all his stock in a redemption qualifying for sale treatment?

d. In Part c, what would be the tax consequences if Nash were a corporation?

e. Which treatment would Nash prefer if Nash were an individual? Which treatment would Nash Corporation prefer?