D Corporation distributed to its sole shareholder a truck worth $5,000 (basis $3,000).The net effect of the distribution on D's E&P (ignoring taxes) is a reduction of $3,000.

Question

Quizplus · Accepted Answer

The distribution of the truck results in a reduction of D's E&P by the difference between its fair market value ($5,000) and its basis ($3,000), which is $2,000. Therefore, option A is correct as it states that the net effect of the distribution on D's E&P is a reduction of $3,000.

D Corporation Distributed to Its Sole Shareholder a Truck Worth