ABC Corp. has two classes of stock issued and outstanding – • common stock, and • nonvoting preferred stock. Both the co
Posted: Mon May 09, 2022 11:19 am
ABC Corp. has two classes of stock issued and outstanding – •
common stock, and • nonvoting preferred stock. Both the common and
the preferred stock are traded on the New York Stock Exchange. (The
exact number of shares of either class is not relevant to the
present issue.) ABC’s board of directors authorized the payment of
the following cash dividends during 2020: Common Stock January 2
$5M April 1 $5M July 1 $5M October 1 $15M Preferred Stock March 15
$15M June 15 $15M September 15 $16M December 15 $18M ABC had
accumulated E&P of $60M as of January 1, 2020. On or about
August 10, 2020, ABC realized an ordinary loss of approximately
$100M, This loss was also recognized on the calendar year end 2020
tax return. ABC is a calendar year corporation. As a result of
recognizing this loss, ABC experienced a deficit in current (2020)
E&P of $40M. Issue How much or which, if any, of ABC’s 2020
dividends should have been reported to shareholders as “ordinary
dividends” (Form 1099-DIV, Box 1a), and how much or which, if any,
should have been reported to shareholders as “Nondividend
distributions” (Form 1099-DIV, Box 3)? Explain your analysis and
support your conclusions.
common stock, and • nonvoting preferred stock. Both the common and
the preferred stock are traded on the New York Stock Exchange. (The
exact number of shares of either class is not relevant to the
present issue.) ABC’s board of directors authorized the payment of
the following cash dividends during 2020: Common Stock January 2
$5M April 1 $5M July 1 $5M October 1 $15M Preferred Stock March 15
$15M June 15 $15M September 15 $16M December 15 $18M ABC had
accumulated E&P of $60M as of January 1, 2020. On or about
August 10, 2020, ABC realized an ordinary loss of approximately
$100M, This loss was also recognized on the calendar year end 2020
tax return. ABC is a calendar year corporation. As a result of
recognizing this loss, ABC experienced a deficit in current (2020)
E&P of $40M. Issue How much or which, if any, of ABC’s 2020
dividends should have been reported to shareholders as “ordinary
dividends” (Form 1099-DIV, Box 1a), and how much or which, if any,
should have been reported to shareholders as “Nondividend
distributions” (Form 1099-DIV, Box 3)? Explain your analysis and
support your conclusions.