Question 1

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?

Accepted Answer

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).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Confusing S Corp rules with Partnership rules (carryover basis).

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?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 2

More questions from this exam