Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of the distribution, Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000. Sally's basis in her Dixie stock after the distribution is

Question

Quizplus · Accepted Answer

The distribution is first a dividend to the extent of Dixie's E&P ($25,000), reducing Sally's basis by the remaining $6,000 of the distribution, resulting in a new basis of $4,000 ($10,000 - $6,000).

Dixie Corporation Distributes $31,000 to Its Sole Shareholder, Sally