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.What is J.D.'s stock basis after the distribution?

Question

Quizplus · Accepted Answer

The distribution of property increases J.D.'s stock basis by the fair market value of the distributed property, minus any gain recognized by J.D. In this case, J.D.'s share of the distribution is $40,000 ($160,000/4 shareholders). Since his basis in the stock is only $50,000, he has a gain of $35,000 ($40,000 distribution - $5,000 stock basis). However, since J.D.'s stock basis cannot be reduced below zero, his stock basis after the distribution will be $45,000 ($50,000 original basis - $5,000 distribution allocated to stock basis).

Assume That at the End of 2019, Clampett, Inc