A C Corporation distributes a property dividend. The property has a basis of $10,000, FMV of $40,000, and is subject to a liability of $15,000 assumed by the shareholder. The corporation has E&P of $100,000. What is the amount of the dividend income to the shareholder?

Answer options:

$40,000

$25,000

$10,000

$55,000

How to approach this question

Shareholder Dividend Amount = FMV of Property Received - Liabilities Assumed.

Full Answer

B.$25,000✓ Correct

The amount of a distribution to a shareholder is the FMV of the property received reduced by any liabilities assumed by the shareholder. $40,000 - $15,000 = $25,000.

Common mistakes

Using the corporation's basis or ignoring the liability reduction.

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