Tern Corporation distributes equipment (basis of $70,000 and fair market value of $90,000)as a property dividend to its shareholders.The equipment is subject to a liability of $100,000.Tern Corporation recognizes gain of:

Question

Quizplus · Accepted Answer

If distributed property is subject to a liability in excess of basis or the shareholder assumes such a liability,the fair market value of the property for purposes of determining gain on the distribution is treated as not being less than the amount of the liability.Thus,gain is $30,000 [$100,000 (liability on the equipment)- $70,000 (basis of the equipment)].

Tern Corporation Distributes Equipment (Basis of $70,000 and Fair Market