Catamount Company 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, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in 20X3 would be:
A)No loss recognized and a reduction in E&P of $250,000.
B)$50,000 loss recognized and a reduction in E&P of $250,000.
C)$50,000 loss recognized and a reduction in E&P of $150,000.
D)No loss recognized and a reduction in E&P of $200,000.

Question

Quizplus · Accepted Answer

Corporations do not recognize losses on distributions of property to shareholders. The reduction in E&P is the greater of the fair market value or the adjusted basis of the property, which in this case is $250,000.

Catamount Company Had Current and Accumulated E&P of $500,000 at December