Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is $20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000). Fred's taxable gain is:
A) $-0-.
B) $10,000.
C) $80,000.
D) $100,000.

Question

Quizplus · Accepted Answer

C) When an S corporation distributes appreciated property to a shareholder, the shareholder must recognize gain to the extent that the fair market value of the property exceeds the shareholder's basis in the S corporation stock. In this case, Fred's basis in the stock is $20,000, and the fair market value of the property distributed is $100,000, resulting in Fred having to recognize a taxable gain of $80,000 ($100,000 - $20,000).

Fred Is the Sole Shareholder of an S Corporation in Fort