Crossroads Corporation distributes $60,000 to its sole shareholder Harley. Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000. After the distribution, Harley's basis is
A)$5,000.
B)$15,000.
C)$20,000.
D)$60,000.

Question

Quizplus · Accepted Answer

The amount of the distribution in excess of the shareholder's basis is treated as a capital gain. In this case, Harley's basis is $20,000, so the distribution of $60,000 would result in a capital gain of $40,000. Therefore, Harley's new basis would be $20,000 (original basis) + $40,000 (capital gain) = $60,000.

Crossroads Corporation Distributes $60,000 to Its Sole Shareholder Harley