ExpertHard1 markMultiple Choice
CPA · Question 31 · Area II: Entity Tax Compliance
An S Corporation distributes property (Basis $20,000, FMV $50,000) to its sole shareholder. The shareholder has a stock basis of $100,000 prior to the distribution. What is the shareholder's basis in the stock AFTER the distribution?
An S Corporation distributes property (Basis $20,000, FMV $50,000) to its sole shareholder. The shareholder has a stock basis of $100,000 prior to the distribution. What is the shareholder's basis in the stock AFTER the distribution?
Answer options:
A.
$50,000
B.
$70,000
C.
$80,000
D.
$100,000
How to approach this question
Multi-step: 1. Corp Gain (FMV - Basis). 2. Increase Stock Basis by Gain. 3. Decrease Stock Basis by FMV of distribution.
Full Answer
C.$80,000✓ Correct
1. Corp Gain = $50k - $20k = $30k. <br/>2. Shareholder Basis Increase = $100k + $30k (gain passed through) = $130k. <br/>3. Distribution Reduction = $130k - $50k (FMV of property) = $80,000.
Common mistakes
Forgetting to increase basis for the gain recognized by the S Corp.
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