[jessanqi]

Hi Can someone please kindly advise:

Lara Corporation’s stock is owned by Toty, Inc., a Delaware corporation. At December 31, 20X5, the close of Lara’s taxable year, Lara had earnings and profits of $90,000. In December 20X5, Lara made a distribution of land to Toty. Lara’s adjusted basis for this land was $25,000, while the land’s fair market value at the date of distribution was $40,000. Lara had no recognized gain on this property distribution. How much of this property distribution should be treated as a dividend in 20X5? 

The answer is 15,000. why 40,000 is the answer?

Thank you very much in advance!!

[Maitoure]

I believe you should think abt it as if you were to sell the land today and use that cash to pay som1ne what would it be?

FMV would have been the answer.

The 15,000 is the gain on the item. Hope this helps!

[ninjacpa_hck]

C-Corp distribute Appreicated Land = Treat as the Land was Sold To Outsider. C-Corp reg Gain on Corp level (FMV – Adjsuted Basis of land) which is 15K.
Shareholder will record the Distrbition of Land at FMV and record it as dividned income (40K).

Notice if C-Corp Distirbution is a “Liqduating Distribution”, treatment to the Shareholder will be different, which will be = Land at FMV – Shareholder's basis in Stock = Capital Gain. Think of it when C-Corp “liqudaites”, a shareholder receive any distributions as an exchange for their stocks “captital asset” that are gone now “, thus shareholder will regonize capital gain in a C-Cor Liqudating Distribution.

[jessanqi]

Thank you guys so much!! I'm really appreciated！！ ：）

[Author]

Replies