Lanco Corporation, an accrual-method corporation, reportedtaxable income of $2,380,000 this year. Included in the computationof taxable income were the following items:
- MACRS depreciation of $232,500. Straight-line depreciationwould have been $152,000.
- A net capital loss carryover of $12,000 from last year.
- A net operating loss carryover of $28,600 from last year.
- $65,850 capital gain from the distribution of land to thecompany’s sole shareholder (see below).
Not included in the computation of taxable income were thefollowing items:
- Tax-exempt income of $7,150.
- Life insurance proceeds of $349,000.
- Excess current-year charitable contribution of $4,100 (to becarried over to next year).
- Tax-deferred gain of $23,100 on a like-kind exchange.
- Federal income tax refund from last year of $41,700.
- Nondeductible life insurance premium of $4,000.
- Nondeductible interest expense of $1,200 on a loan used to buytax-exempt bonds.
Lanco's accumulated E&P at the beginning of the year was$2,820,000. During the year, Lanco made the following distributionsto its sole shareholder, Luigi (Lug) Nutt:
- June 30: $67,500.
- September 30: Parcel of land with a fair market value of$77,750. Lanco’s tax basis in the land was $11,900. Lug assumed anexisting mortgage on the property of $24,000.
Required:
- Compute Lanco’s current E&P.
- Compute the amount of dividend income reported by Lug Nutt thisyear as a result of the distributions. Answer:121,250
- Compute Lanco’s accumulated E&P at the beginning of nextyear.
