Paladin Corporation had current and accumulated E&P of $500,000 at December 31,20X3. On December 31, the company made a distribution of land to its sole shareholder, Maria Mendez. The land's fair market value was $200,000 and its tax and E&P basis to Paladin was $250,000. Maria assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Paladin in 20X3 would be:

Question

Quizplus · Accepted Answer

Paladin Corporation cannot recognize a loss on the distribution of property to a shareholder. The reduction in E&P is the fair market value of the land ($200,000) minus the liability assumed by Maria ($25,000), resulting in a reduction of $225,000.

Paladin Corporation Had Current and Accumulated E&P of $500,000 at December