If a corporation distributes appreciated property to its shareholders, the corporation is treated as if it sold the property to the shareholders for its FMV immediately before the distribution, and the corporation will recognize any realized gain.

Question

Quizplus · Accepted Answer

This is known as a deemed sale and is required under IRC §311(b). The corporation will recognize any realized gain as if it had sold the property at its FMV immediately before the distribution. The shareholders will also have to recognize any gain, but it will be based on their individual basis in the stock.

If a Corporation Distributes Appreciated Property to Its Shareholders, the Corporation