An S corporation distributes land with a basis of $60,000 and a FMV of $90,000 to its shareholders. The tax results of the distribution will be
A)no gain to the corporation or to the shareholders.
B)$30,000 of gain recognized by the S corporation and no pass through to the shareholders.
C)no gain recognized by the corporation but $30,000 of gain recognized by the shareholders.
D)$30,000 of gain recognized by the S corporation which is passed through to the shareholders.

Question

Quizplus · Accepted Answer

The S corporation will recognize $30,000 of gain since the FMV of the land is higher than its basis. This gain will be passed through to the shareholders and included in their personal tax returns. Therefore, option D is the correct answer. Option A is incorrect because a gain was realized by the S corporation. Option B is incorrect because the gain is passed through to the shareholders. Option C is incorrect because the S corporation does have a gain, but it is passed through to the shareholders.

An S Corporation Distributes Land with a Basis of $60,000