On January 2, Chaz transfers cash of $143,400 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $35,850. The income is credited to its earnings and profits account. The corporation distributes $10,755 to Chaz. A. How do Chaz and the corporation treat the $10,755 distribution?
B. Assume instead that Chaz transfers to the corporation cash of $71,700 for stock and cash of $71,700 for a note of the same amount. The note is payable in equal annual installments of $7,170 and bears interest at the rate of 6%. No distributions are made during the year to Chaz. However, at the end of the year, the corporation pays an amount to meet the loan obligation(i. e., the annual $7,170 principal payment plus the interest due). Determine the total amount of the payment and its tax treatment to Chaz and the corporation.
The corporate payment to Chaz totals $. Chaz has interest of $ and a note repayment of $ of which $is taxable to Chaz. The corporation has a deduction of $$ of which $ is taxable to Chaz. The corporation has a deduction of $.