ExpertEasy1 markMultiple Choice
CPA · Question 26 · Area II: Entity Tax Compliance
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?
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:
A.
No gain or loss recognized.
B.
Recognize $30,000 loss.
C.
Recognize $30,000 gain.
D.
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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