A corporation distributes land and the related liability to Meg, its sole shareholder. The land has an FMV of $60,000 and is subject to a liability of $70,000. The corporation has current and accumulated E&P of $80,000. The corporation's adjusted basis for the property is $70,000. What effect does the transaction have on the corporation?
A)A recognized loss of $10,000; its E&P is reduced by $70,000.
B)A recognized loss of $10,000; its E&P is unchanged.
C)No recognized gain or loss; its E&P is reduced by $60,000.
D)No recognized gain or loss; its E&P is unchanged by the distribution.

Question

Quizplus · Accepted Answer

The corporation does not recognize a gain or loss on the distribution of property subject to a liability that exceeds its fair market value. The E&P is not reduced because the liability exceeds the FMV of the property.

A Corporation Distributes Land and the Related Liability to Meg