A C Corporation distributes land to its sole shareholder as a nonliquidating distribution. The land has a basis of $20,000 and an FMV of $50,000. The corporation has ample E&P. What are the tax consequences to the corporation?

Answer options:

No gain or loss recognized.

Recognize $30,000 loss.

Recognize $30,000 gain.

Recognize $50,000 gain.

How to approach this question

Treat distribution of appreciated property as a sale at FMV. Gain = FMV - Basis.

Full Answer

C.Recognize $30,000 gain.✓ Correct

IRC §311(b). If a corporation distributes appreciated property, it must recognize gain as if the property were sold to the distributee at its fair market value. Gain = $50,000 - $20,000 = $30,000.

Common mistakes

Thinking distributions are tax-free to the corporation.

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