ExpertMedium1 markMultiple Choice
CPA · Question 32 · Area II: Entity Tax Compliance
A C Corporation distributes a property dividend to a shareholder. The property has an FMV of $100,000 and a basis of $140,000. The corporation has sufficient E&P. What are the tax consequences to the corporation?
A C Corporation distributes a property dividend to a shareholder. The property has an FMV of $100,000 and a basis of $140,000. The corporation has sufficient E&P. What are the tax consequences to the corporation?
Answer options:
A.
$40,000 loss is recognized.
B.
No loss is recognized.
C.
$40,000 loss is deferred.
D.
$40,000 gain is recognized.
How to approach this question
Rule: Corps recognize GAIN on distribution of appreciated property, but CANNOT recognize LOSS on distribution of depreciated property (unless liquidating).
Full Answer
B.No loss is recognized.✓ Correct
No loss is recognized.
IRC §311(a) states that no gain or loss shall be recognized to a corporation on the distribution (not in complete liquidation) with respect to its stock of property. While §311(b) overrides this for gains, there is no override for losses. The loss is permanently lost.
Common mistakes
Treating loss property the same as gain property.
Practice the full CPA TCP Practice Exam 2
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive receives an Incentive Stock Option (ISO) to purchase 1,000 shares of stoc...MediumQ02A taxpayer is calculating their Alternative Minimum Tax (AMT) liability for Year 1. They claimed ...MediumQ03On January 1, Year 1, a corporation lends $500,000 to a shareholder at a 0% interest rate. The Ap...HardQ04A U.S. citizen accepts a permanent assignment in France on January 1, Year 1. In Year 1, they ear...MediumQ05A 12-year-old child has $5,000 of interest income and no earned income in Year 1. The standard de...Medium