ExpertMedium1 markMultiple Choice
CPA · Question 44 · Area II: Entity Tax Compliance
An S Corporation distributes appreciated property (Basis $10,000, FMV $100,000) to its sole shareholder in a liquidating distribution. The shareholder's stock basis is $50,000. What are the tax consequences?
An S Corporation distributes appreciated property (Basis $10,000, FMV $100,000) to its sole shareholder in a liquidating distribution. The shareholder's stock basis is $50,000. What are the tax consequences?
Answer options:
A.
Corp: $0 Gain; Shareholder: $50,000 Gain
B.
Corp: $90,000 Gain; Shareholder: $140,000 Gain (before basis adj)
C.
Corp: $0 Gain; Shareholder: $0 Gain
D.
Corp: $90,000 Gain; Shareholder: $50,000 Gain
How to approach this question
.
Full Answer
B.Corp: $90,000 Gain; Shareholder: $140,000 Gain (before basis adj)✓ Correct
B
IRC §336. The S Corporation recognizes gain of $90,000 ($100,000 FMV - $10,000 Basis). This gain flows through to the shareholder.
Common mistakes
Thinking liquidation is tax-free to the corp.
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