[startupcfo]

Kent Corp. is a calendar-year, accrual-basis, C corporation. In the current year, Kent made a nonliquidating distribution of property with an adjusted basis of $150,000 and a fair market value of $200,000 to Reed, its sole shareholder. The following information pertains to Kent:

Reed’s basis in Kent stock at January 1 $500,000

Accumulated earnings and profits at

January 1 125,000

Current earnings and profits, including

the effects of this distribution 60,000

SO I’VE CONCLUDED THAT THE GUY GETS A 185k DIVIDEND. What I can’t seem to figure out is what his new basis is in the new property.

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[tuanxn]

shareholder's property in distributed property from C-corps and S-corps is FMV

[Char143]

I have no idea if I am correct on this, but I believe his basis is $200,000 (the fmv) and his basis in the corp is now $485,000 (500,000-15,000). Maybe?

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Tuthegreat]

where is this “s-corp” fact pattern coming from? a c-corp can have non-liquidating distribution without being converted into an s-corp..

why would you want a conversion from c to s? trapped losses and BIG taxes. not ideal situation…

Circular 230: I know nothing about nothing

[katlind14]

I had issues with this question when i came across it in Becker……

First, the dividend that Reed will actually receive from this distribution is $200,000. That is because when Kent Corp distributes the property to Reed they recognize a gain of $50,000. As a result, their Current E&P increases to $110,000 ($60,000 + $50,000). In total, Kent Corp now has $235,000 in Current E&P and Accumulated E&P. Therefore, Reed's entire $200,000 distribution of the property will be a dividend and there will not be any return on capital.

Since there is no return on capital, Reed's basis will stay at $500,000 in Kent Corp and the basis Reed takes in the property is the FMV, which is $200,000.

Hopefully this helps!

AUD- 75 5/30/16
REG- 81 7/18/16
FAR-TBD
BEC-9/8/16

[tulanecpa]

Katlind, the question states that the effect of the gain from the distribution is included in current E&P. Thus, the dividend amount is still $185,000 (taxable).

Reed's basis in C Corp will decrease by the excess $15K over E&P to $485K.

As for the shareholder's basis, I'm not quite sure. I'd imagine it would be $200K though.

[startupcfo]

Katlind, does the fact that this is a controlled affect the answer? What if this person only owned 2% of the c-corp vs 100%?

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

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