Pardners, Inc., an accrual basis taxpayer, has two equal shareholders, Dean and Jerry. They each bought their shares five years ago for $100,000. The following transactions also occurred during the year:
| a | Pardners had taxable income of $186,000. |
| b | Taxable income was reduced by a net operating loss carryover of $40,000. |
| c | It paid federal income taxes of $65,000. |
| d | It had meal and entertainment expenses of $ 8,000. |
| e | The company paid life insurance premiums on key employees of $15,000. |
| f | It received life insurance payments on key employees of $25,000. |
| g | The cash surrender value of the key man policies increased by $5,000 during the year. |
| h | The company sold a piece of equipment during the year for $150,000. The purchase price will be paid over three years, starting in 2014, at $50,000 per year. The company’s tax basis in the equipment was $110,000. |
| i | The company sold a piece of land held for investment during the year and reported a capital gain of $105,000. The corporation also a capital loss carryforward of $10,000. |
| j | E & P depreciation exceeded MACRS depreciation by $14,000. |
| k | An election under § 179 was made in 2011 for $40,000 of assets. |
| l | Pardners made a distribution to Dean and Jerry of $150,000 each on August 4, 2013. |
| m | Dean sold his stock to Jerry on November 5, 2013 for $ 125,000. |
| n | Pardners had a deficit in accumulated E&P as of January 1, 2012 of $234,000. |
| 1 | Compute Pardners’ current E & P prior to the distribution.. |
| 2 | What are the tax consequences of the distribution to Dean and Jerry? |
| 3 |
What was Dean’s gain or loss on the sale of his stock.? |
