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PDtax, CPA firm owner, business consultant, author
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A Corporation, the world famous Zimba Corp, was formed by

Customer Question

A Corporation, the world famous Zimba Corp, was formed by three different shareholders, on January 1, 2011. The shareholders contributed the following assets to the corporation. Name of S/H Number of Shares Asset Basis in Hands FMV Of Owner Aluga Corp
300 Cash $100,000 $100,000 Spiderman 300 Land $ 50,000 $100,000 Doctor Evil 300 Building $ 20,000 $100,000 Debt of $30,000 Problem 1. Part 1. Please define the tax ramifications to both Zimba Corporation and the shareholders. I would like to see the basis
in the assets or shares for each entity. Part 2. During the 2011, Zimba Corp lost money and ended up with an accumulated deficit in E&P of $70,000. During the years 2012 and 2013, Zimba Corp. made money, and the current E&P for the 2012 year was $20,000, and
$40,000 for 2013. During 2013, the corporation made a distribution of $30,000 to each shareholder. Please explain the tax ramifications for Zimba Corporation and the shareholders.
Submitted: 1 year ago.
Category: Single Problem
Expert:  PDtax replied 1 year ago.

Hi from Just Answer. I'm PDtax, and can assist.

Expert:  PDtax replied 1 year ago.

I am being called away from the service. I will opt out so other experts can review your request and advise.

Expert:  PDtax replied 1 year ago.

Hi again. I was able to return to the service sooner than expected, and will assist.

Part 1: Zimba receives the following assets: Cash $100,000, land at $50,000 and the building at $30,000 bases. The cash and land go in at carryover basis, the building goes in at Dr. Evil’s basis plus the gain he recognizes ($10,000) from the debt relief. Aluga corp gets its stock at $100,00 basis, Spiderman gets his stock at $50,000 basis, and Dr. Evil gets his at $30,000 basis.

Part 2: The distributions are deemed first from current E&P since they were paid in 2013. As such, The $40,000 E & P was only half earned through 2013. Of the $90,000 total distributed, $20,000 is dividend return of E & P. The remainder, $70,000, is return of capital, $23,333 for each shareholder. There is no tax issue for Zumba Corp.

Thanks for asking at Just Answer. Positive feedback is appreciated. I'm PDtax.