Sparrow corporation is a calendar year taxpayer. at the beginning of the current year, sparrow has accumulated e & p of $33,000. the corporation incurs a deficit in current e & p of $46,000 that accrues ratably throughout the year. on june 30, sparrow distributes $20,000 to its sole shareholder, libby. if libby's stock has a basis of $4,000, how is she taxed on the distribution?

The Dividend income is $10,000 whereas tax free recovery of basis is $4,000, and capital gain is $6,000.

Explanation: The accumulated and current E & P must be totaled because one half of the loss is incurred in June 30 ($46,000/2 = $23,000). So now you would reduce the accumulated E & P $33,000 with $23,000 which equals to $10,000. This is the balance in E & P which is the dividend income that would be distributed.

The other $10,000 of the distribution is first recovery of the capital which is $4000 and then a $6,000 capital gain.

all of them make sense but, i would have to say ask someone who has been there/or lives there, and/or read recent newspapers from that city.

hope this !

answer; common market;