ExpertMedium1 markMultiple Choice
CPA · Question 45 · Area 3: Entity Tax Compliance
A C Corporation distributes land to a shareholder as a dividend. FMV $100,000; Basis $120,000. What is the tax consequence to the Corporation?
A C Corporation distributes land to a shareholder as a dividend. FMV $100,000; Basis $120,000. What is the tax consequence to the Corporation?
Answer options:
A.
No loss recognized.
B.
$20,000 Loss recognized.
C.
$20,000 Gain.
D.
Loss deferred until shareholder sells.
How to approach this question
1. Rule: IRC §311(a) - No gain or loss recognized on distribution of property?<br/> §311(b) requires Gain recognition. But Loss is NOT recognized.<br/>2. Scenario: Basis ($120k) > FMV ($100k) -> Loss.<br/>3. Result: Loss is disallowed.
Full Answer
A.No loss recognized.✓ Correct
A
Under IRC §311(a), no loss is recognized by a corporation on the distribution of property with a tax basis in excess of its fair market value.
Common mistakes
Thinking losses are treated symmetrically with gains.
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