Catamount Company had current and accumulated E&P of $505,000 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 $205,000 and its tax and E&P basis to Catamount was $252,500. The tax consequences of the distribution to Catamount in 20X3 would be:

Question

Quizplus · Accepted Answer

In the context of corporate distributions, losses on distributions of property to shareholders are not recognized for tax purposes. The E&P (Earnings and Profits) of the corporation is reduced by the property's basis (not its fair market value) to the corporation when the property is distributed. Therefore, there is no loss recognized, and the E&P is reduced by the property's basis to Catamount, which is $252,500.

Catamount Company Had Current and Accumulated E&P of $505,000 at December