When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the FMV of the property distributed and increased by the gain (net of federal income taxes)recognized due to the property distribution.

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Quizplus · Accepted Answer

When appreciated property is distributed in a nonliquidating distribution, the distributing corporation's E&P is reduced by the FMV of the property distributed and increased by the gain recognized due to the property distribution (net of federal income taxes). This is known as "E&P reduction" or "E&P adjustment."

When Appreciated Property Is Distributed in a Nonliquidating Distribution, the Net