Big-gain Corporation distributes land with a fair market value of $220,000 to its sole shareholder. Big-gain's tax basis in the land is $115,000. Big-gain will not be taxed on a gain on the distribution if it has a deficit of ($250,000)in E&P.

Question

Quizplus · Accepted Answer

The distribution of property (such as land) by a corporation to its shareholders is treated as a sale or exchange for tax purposes. The corporation recognizes gain to the extent that the property's fair market value exceeds its tax basis in the property. The corporation's earnings and profits (E&P) deficit does not negate the recognition of this gain.

Big-Gain Corporation Distributes Land with a Fair Market Value of $220,000