JJJ Company has earnings and profits of $30,000.The corporation distributes property with a basis of $40,000 and a FMV of $35,000 to Jill,its sole shareholder.Her basis in the stock is $30,000.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Since the FMV of the distributed property is less than its basis, it is considered a return of capital to Jill. Therefore, she reports a nontaxable return of capital of $5,000. Option A is incorrect since the company does not record a loss in this situation. Option B is incorrect since the distribution is not considered as dividend income. Option D is incorrect since there is a correct answer.

JJJ Company Has Earnings and Profits of $30,000