Question 1. In the current year, Carnation Corporation has a § 179 expense of

1. In the current year, Carnation Corporation has a § 179 expense of $60,000. As a result, in the current year, taxable income must be increased by $48,000 to determine current E & P.

a. True

b. False

2. A deficit in current E & P is treated as occurring ratably during the year, unless the taxpayer can show otherwise.

a. True

b. False

3. When current E & P has a deficit and accumulated E & P is positive, the two accounts are netted at the date of the distribution. If a positive balance results, the distribution is a dividend to the extent of the balance.

a. True

b. False

4. When current E & P is positive and accumulated E & P has a deficit balance, the two accounts are netted for dividend determination purposes.

a. True

b. False

5. Regardless of any deficit in current E & P, distributions during the year are taxed as dividends to the extent of accumulated E & P.

a. True

b. False

6. Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise.

a. True

b. False

7. Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years.

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