Question 1

A C corporation distributes land to a shareholder as a dividend. The land has an adjusted basis of $20,000 and a fair market value of $50,000. The land is subject to a liability of $10,000, which the shareholder assumes. What is the amount of gain recognized by the corporation?

Accepted Answer

Corp Distribution Rule: Treat as if sold for FMV. Gain = FMV - Basis.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Thinking the liability reduces the gain recognized by the corporation (it affects the shareholder's basis/income, not the corp's gain, unless Liab > FMV).

A C corporation distributes land to a shareholder as a dividend. The land has an adjusted basis of $20,000 and a fair market value of $50,000. The land is subject to a liability of $10,000, which the shareholder assumes. What is the amount of gain recognized by the corporation?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 5

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