The Drabb Trust owns a plot of business-related land,basis of $50,000,fair market value of $35,000.Drabb is subject to a 35% marginal income tax rate.Its sole beneficiary,Eddie,is subject to a 15% marginal income tax rate.Drabb's current-year distributable net income is $95,000.What is the most preferable action for the trustee of Drabb to take,considering only the related tax consequences?

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Quizplus · Accepted Answer

Selling the land to a third party will likely result in a long-term capital gain, which will be taxed at a lower rate than Drabb's marginal income tax rate. Additionally, distributing the land to Eddie would result in the recognition of $15,000 of taxable income (the difference between the basis and fair market value) for Eddie, which would be taxed at his higher marginal income tax rate. Making a § 643(e) election would not be beneficial in this scenario, as it would result in Drabb being taxed on the income from the sale of the land. Therefore, selling the land to a third party would likely result in the most favorable tax consequences for both Drabb and Eddie.

The Drabb Trust Owns a Plot of Business-Related Land,basis of $50,000,fair