Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder.Evergreen's tax basis in the land is $50,000.Evergreen will report a gain of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

Question

Quizplus · Accepted Answer

This is due to the fact that the fair market value of the land is $200,000, while Evergreen's tax basis in the land is only $50,000. The difference between the two amounts, which is $150,000, represents the gain that Evergreen will report on the distribution. The existence or non-existence of earnings and profits does not affect the gain calculation.

Evergreen Corporation Distributes Land with a Fair Market Value of $200,000