Athens Corporation distributes land with a fair market value of $60,000 and an adjusted basis of $25,000.The land is subject to a liability of $20,000.What is the total effect of the distribution on the E & P of Athens?

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Quizplus · Accepted Answer

The distribution of land with a fair market value of $60,000 and an adjusted basis of $25,000 results in a realized gain of $35,000 ($60,000 - $25,000). However, since the land is subject to a liability of $20,000, the amount of gain recognized for tax purposes is reduced to $15,000 ($35,000 - $20,000). This $15,000 gain reduces the E & P of Athens by the same amount, resulting in a reduction of $5,000 ($15,000 x 0.33).

Athens Corporation Distributes Land with a Fair Market Value of $60,000