[tulanecpa]

Hi guys, a few questions about C corp property distributions.

I understand that a C corp has to recognize gains on appreciated property distributions, at FMV-NBV. But what if the property is subject to debt that is assumed by the shareholder? Would this affect the gain recognized by the corporation, and would it affect the shareholder’s recognition of income? Or would it only be in the case of debt transferred exceeding FMV?

Also, if a C Corp distributes property with NBV>FMV, would it then also recognize a loss and subsequent decrease in E&P, or just if it’s a gain?

Thanks!

[tuanxn]

On distributions of appreciated property, debt doesn't affect the gain recognized by the corporation, unless the debt is
greater than the FMV of the property. As you stated, if the debt is greater than the FMV, then the corporation recognizes a
gain that is equal to the difference between basis and the debt (rather than the difference between FMV and basis)

The amount of debt will reduce the amount of distribution that the shareholder receives.
Therefore, if a corporation distributes land with a basis of $50, FMV of $100, subject to a liability of $20; the
shareholder will only receive a distribution of $80 (FMV – liability). The income recognized from this distribution
will ultimately depend on how much E&P the corporation had (dividend to this extent), shareholder's basis (return of
basis to this extent=nontaxable), and then capital gain thereafter.

Important to note that the shareholder takes a basis in the property equal to its FMV, regardless if there's a liability
attached to it.

If a C-corp distributes depreciated property (FMV < NBV), the corporation is NOT allowed to recognize the loss.
The shareholder will receive a distribution equal to the FMV of the property.

[Anonymous]

Here's another resource:

https://tax.cchgroup.com/downloads/files/contemporary-tax-practice/Module2/Topic1/A-C-Corporations-S-Corporations-Overview.asp

Modules cover s-corps, partnerships and c-corps.

[tulanecpa]

Very helpful Tuanxn, thank you

[rajwinder84]

Hello everyone, Does anyone has example of S Corp. vs. Partnership? I had two simulations in exams. I would like to prepare myself for this time. I would like to completely understand S Corp. vs. Partnership. Please please if someone has example please share…… Thanks…..

[Author]

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