Property distributions to shareholders can result in the distributing corporation recognizing gains but not losses.

Question

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According to the tax code, when a corporation distributes property to its shareholders, the corporation recognizes a gain or loss depending on the difference between the fair market value (FMV) of the property and its adjusted basis. If the FMV is greater than the adjusted basis, the corporation recognizes a gain. However, if the FMV is less than the adjusted basis, the corporation cannot recognize a loss, and the loss is deferred until the shareholder sells the property. Therefore, property distributions to shareholders can result in the distributing corporation recognizing gains but not losses.

Property Distributions to Shareholders Can Result in the Distributing Corporation