Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of $150,000 on the distribution regardless of whether its E&P is positive or negative.

Question

Quizplus · Accepted Answer

When a corporation distributes property with a fair market value that exceeds its tax basis, the corporation must recognize gain equal to the difference between the fair market value and tax basis. In this case, the gain would be $150,000 ($200,000 FMV - $50,000 tax basis). This gain is recognized regardless of the corporation's E&P.

Evergreen Corporation Distributes Land with a Fair Market Value of $200,000