Problem 3.2 Allocation of Earnings and Profits Timing of Earnings and Profits On January 1, 20x8, Flower Corporation was owned equally by two

individuals, Iris and Daisy. On June 30, 2018 Iris sold her stock in Flower to Gladys for $20,000. At January 1, 20x8 Iris and Daisy both had a basis of

$10,000 in their stock in Flower Corporation. At January 1, 20x8, Flower Corporation had negative accumulated earnings and profits of ($50,000). At

June 30, 20x8, Flower Corporation calculated their 20x8 year-to-date earnings and profits to be $60,000. After losses in the second half of the year, at

December 31, 20x8, Flower Corporation had current year earnings and profits for the entire year of $30,000. On March 1, 20x8, Flower Corporation

distributed $10,000 in cash to each Iris and Daisy (the total distributions were $20,000). On October 1, 20x8, Iris Corporation distributed $10,000 to each Dairy and Gladys (total distributions were $20,000).

a) What are the tax consequences to Iris as a result of the March 1 distribution?

b) What are the tax consequences to Iris as a result of the June 30 stock sale?

c) What at the tax consequences to Gladys as a result of the October 1 distribution?

d) What is Flower Corporations accumulated earnings and profits at January 1, 20x9?

Note: Show your calculations, reference all relevant citations (IRC codes & regulation), and explain your answer. Use a flat corporate rate of 21% for all problems. Use an individual tax rate of 28%, and an individual capital gains rate of 15%. Assume that all dividends are qualified dividends. Assume there is no Alternative Minimum Tax for these problems. Assume that all entities are US domestic corporations, taxed under Subchapter C of the IRC unless otherwise noted.