Reggie owns all the stock of Amethyst, Inc.(adjusted basis of $80,000).If he receives a distribution from Amethyst of $70,000 and corporate earnings and profits are $18,000, Reggie has a capital gain of $8,000 and an adjusted basis for his Amethyst stock of $0.

Question

Quizplus · Accepted Answer

Reggie would first reduce his stock basis by the distribution amount. The distribution is not a capital gain unless it exceeds both the earnings and profits and the adjusted basis. Here, the distribution does not exceed the adjusted basis, so there is no capital gain. The adjusted basis would be reduced by the distribution amount, resulting in a new basis of $10,000 ($80,000 - $70,000).

Reggie Owns All the Stock of Amethyst, Inc