ExpertMedium1 markMultiple Choice
CPA · Question 56 · Area II: Entity Tax Compliance
An S Corporation distributes appreciated property (FMV $100,000, Basis $20,000) to its sole shareholder. The shareholder's stock basis is $150,000. What is the shareholder's basis in the distributed property?
An S Corporation distributes appreciated property (FMV $100,000, Basis $20,000) to its sole shareholder. The shareholder's stock basis is $150,000. What is the shareholder's basis in the distributed property?
Answer options:
A.
$20,000
B.
$100,000
C.
$150,000
D.
$80,000
How to approach this question
S Corp Distribution Rule: Shareholder takes FMV basis in distributed property. (Note: The S Corp recognizes gain, which passes through to the shareholder, increasing stock basis, then the distribution reduces stock basis).
Full Answer
B.$100,000✓ Correct
IRC §301(d). The basis of property received in a distribution is its fair market value. (Note: The S Corp recognizes the $80k gain, which flows to the shareholder, but the basis in the property itself is FMV).
Common mistakes
Confusing S Corp rules with Partnership rules (carryover basis).
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