Hawkeye Company reports current E&P of $300,000 this year and accumulated E&P at the beginning of the year of $200,000. Hawkeye distributed $400,000 to its sole shareholder, Ray Kinsella, on December 31 of this year. Ray’s tax basis in his Hawkeye stock is $75,000.
How much of the $400,000 distribution is treated as a dividend to Ray?
What is Ray’s tax basis in his Hawkeye stock after the distribution?
What is Hawkeye’s balance in accumulated E&P as of January 1 of next year?
If the distribution was a liquidating distribution, what would be the difference in treatment and tax basis?
Note: Please explain and show computation.