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Wineseller Corporation is owned by Mortimer Smith, its sole shareholder. Mortimer has a $20,000 basis...

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Accounting

Wineseller Corporation is owned by Mortimer Smith, its sole shareholder. Mortimer has a $20,000 basis

in his Wineseller Corporation stock. Mortimer is in the 37% tax bracket. Wineseller Corporation is in the

21% tax bracket.

Wineseller Corporation has the following balances as of December 31, 2021.

Accumulated Earnings and Profits (AEP) ($600,000)

Current Earnings and Profits $ 70,000

On December 31, 2021, Wineseller Corporation distributes $160,000 to Mortimer.

a.What are the tax consequences to Mortimer from receiving this distribution from Wineseller

Corporation?

b.How would your answer above be different if instead Wineseller Corporation had the following

balances:

Accumulated Earnings and Profits (AEP) $500,000

Current Earnings and Profits (480,000)

Assume that Mortimer still receives a distribution of $160,000 and has stock basis of

$20,000

c.Use the facts in part a, but assume that rather than cash, Mortimer received an asset with a fair

market value of $200,000 and a basis to the corporation of $120,000.

How much tax would Mortimer owe from this distribution?

What are the tax implications to Wineseller Corporation

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