A C Corporation distributes land to a shareholder as a dividend. The land has an adjusted basis of $10,000 and a fair market value (FMV) of $30,000. What are the tax consequences to the Corporation?

Answer options:

No gain or loss recognized.

Recognize $20,000 loss.

Recognize $20,000 gain.

Recognize $30,000 gain.

How to approach this question

Rule: Corp recognizes gain on distribution of appreciated property as if sold for FMV. Gain = FMV - Basis.

Full Answer

C.Recognize $20,000 gain.✓ Correct

Under IRC §311(b), a corporation recognizes gain on the distribution of appreciated property to shareholders as if the property were sold to the shareholder at its FMV. Gain = $30,000 - $10,000 = $20,000.

Common mistakes

Thinking distributions are tax-free to the corporation.

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