Problem
Michael is the sole shareholder of Jordan, Inc. His stock basis is $20,000. Jordan, Inc. has accumulated e & p of $80,000 at the beginning of the current year, and it distributes $40,000 to Michael on April 1 of the current year. Jordan, Inc. has a deficit of $100,000 in current e & p during the first quarter of the year (i.e., on April 1), but ends the year with a deficit of only $32,000 in current e & p.
What are the tax consequences of the distribution to Michael if the corporation uses the ratable allocation approach of Rev. Rul. 74- 164?