On September 30, Sparrow Corporation, a calendar year taxpayer, sold a parcel of land (basis of $300k) for a $900k note. The note is payable in five installments, with the first payment due next year. Because Sparrow did not elect out of the installment method, none of the $600k gain is taxed this year.

Sparrow Corporation had a $400k deficit in accumulated E&P at the beginning of the year. Before considering the effect of the land sale, Sparrow had a deficit in current E&P of $100k.

Oren, the sole shareholder of Sparrow, has a basis of $150k in his stock. If Sparrow distributes $950k to Oren on December 31, how much income must he report for tax purposes? Answer problems below

The $600k gain on the sale of the land increases current E&P. (current year deficit E&P before the distribution + gain on sale= dividend treatment for distribution).

(Of the remaining distributions follow formula: return of capital (tax free) and excess is capital gain)

Oren reports a $k? taxable dividend and a $k capital gain.