Assume that at the end of 2019, Clampett, Inc.(an S corporation)distributes property (fair market value of $40,000, basis of $5,000)to each of its four equal shareholders (aggregate distribution of $160,000).At the time of the distribution, Clampett, Inc., has no corporate earnings and profits and J.D.has a basis of $50,000 in his Clampett, Inc., stock.How much income does J.D.recognize as a result of the distribution?

Question

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Since the shareholders receive property with a fair market value of $40,000 and J.D. has a basis of $50,000 in his stock, he would recognize a $10,000 loss on the distribution ($50,000 basis - $40,000 fair market value of property received). However, since the S corporation has no corporate earnings and profits, the loss cannot be recognized and J.D. would recognize $0 income.

Assume That at the End of 2019, Clampett, Inc