ExpertMedium1 markMultiple Choice
CPA · Question 25 · Area II: Entity Tax Compliance
A C Corporation distributes land to a shareholder as a nonliquidating distribution. The land has a basis of $40,000 and an FMV of $90,000. The corporation has ample E&P. What are the tax consequences to the corporation?
A C Corporation distributes land to a shareholder as a nonliquidating distribution. The land has a basis of $40,000 and an FMV of $90,000. The corporation has ample E&P. What are the tax consequences to the corporation?
Answer options:
A.
No gain or loss recognized.
B.
Recognized loss of $50,000.
C.
Recognized gain of $50,000.
D.
Recognized gain of $90,000.
How to approach this question
Apply IRC §311(b). Corporation recognizes gain on distribution of appreciated property as if sold for FMV. $90k - $40k = $50k gain.
Full Answer
C.Recognized gain of $50,000.✓ Correct
C
IRC §311(b). A corporation recognizes gain on the distribution of appreciated property (FMV $90,000 - Basis $40,000 = $50,000 gain). Losses are not recognized.
Common mistakes
Thinking distributions are tax-free to the corporation.
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