On September 30, Silver Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1,000,000 note. The note is payable in five installments, with the first payment due next year. Because Silver did not elect out of the installment method, none of the $600,000 gain is taxed this year.
Silver Corporation had a $300,000 deficit in accumulated E & P at the beginning of the year. Before considering the effect of the land sale, Silver had a deficit in current E & P of $50,000.
Sam, the sole shareholder of Silver, has a basis of $200,000 in his stock. Sam holds the Silver Corporation stock as an investment.
If Silver distributes $900,000 to Sam on December 31, how much income must he report for tax purposes? Note: If an amount is zero, enter "0".
Sam reports a $_____________ taxable dividend and a capital gain of $___________. After the distribution, Sam's stock basis is $____________.
Income to report as income for tax purpose =$700,000, since Silver Corporation had a
$300,000 deficit in accumulated E & P at the beginning of the year ($1,000,000 - $300,000)
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