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Corporation current E&P for Scarlet Corporation

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25. Scarlet Corporation has a deficit in accumulated E & P of $500,000. It has current E & P of $350,000. On July 1, Scarlet distributes $400,000 to its sole shareholder, Lupita. Lupita has a basis of $95,000 in her stock in Scarlet Corporation. As a result of the distribution, Lupita has:

a. Dividend income of $400,000.
b. Dividend income of $95,000 and reduces her stock basis to zero.
c. Dividend income of $350,000 and reduces her stock basis to $45,000.
d. No dividend income, reduces her stock basis to zero, and has a capital gain of $400,000.
e. None of the above.

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Corporation current E&P for Scarlet Corporation is given. The solution determines what Lupita has for distributes of shareholders.

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The answer is C. Here is the reason: the corporation current E&P is ...

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