[mdrobbin]

My exam is a few days away and I could really use some help on this. I think I wrote down from one of the Test Bank answers that when a corporation makes a non-liquidating distribution of appreciated property to a shareholder, regardless of AEP, that shareholder recognizes a gain as if it was received from a 3rd party.

First of all, is that even accurate? If so, does that override the whole concept of the distribution being: 1. Dividend to extent of CEP and AEP 2. Return of basis 3. Gain recognized to the extent distribution exceeds basis

This is REALLY giving me a headache… maybe I just made this up in my notes and have it wrong. I would GREATLY appreciate some clarity on this.

Thanks!

FAR - 2012 - PASSED (YAEGER)
AUD - 2012 - PASSED (YAEGER + NINJA NOTES)
BEC - 2012 - PASSED (YAEGER + NINJA NOTES)
REG - 2013 - PASSED (YAEGER + NINJA NOTES + NINJA AUDIO)

ETHICS - 2013 - PASSED

DONE!!! Thank you A71 for all the support! Hiya!!!

[jman6]

It is taxable to the extent of current EP plus accumulated EP plus the gain generated by the distribution itself.

BEC (11/17/12): 88
AUD (1/18/13): 76
REG (2/27/13): 88
FAR (4/15/13): 90

[mdrobbin]

Thanks… so is that full amount including the gain still subject to the Dividend/Return of Basis/Gain treatment? That would make sense.

I was confused if it was saying that the full amount, regardless of CEP/AEP and basis, was immediately LTCG… but that makes sense if it's just saying that the AMOUNT includes the gain and that full amount is treated in the 3-step approach.

Thanks again for the feedback!

FAR - 2012 - PASSED (YAEGER)
AUD - 2012 - PASSED (YAEGER + NINJA NOTES)
BEC - 2012 - PASSED (YAEGER + NINJA NOTES)
REG - 2013 - PASSED (YAEGER + NINJA NOTES + NINJA AUDIO)

ETHICS - 2013 - PASSED

DONE!!! Thank you A71 for all the support! Hiya!!!

[Anonymous]

@mdrobbin – You got it.

For C-Corp non-liquidating property distributions, the shareholder receiving the property recognizes it at the FMV received. But the “taxable” portion depends on the corp's CEP and AEP. It will either be treated as a taxable dividend or return of investment (not-taxable).

The corporation itself recognizes the property distribution as if was sold, so the corp recognizes a gain to the extent FMV exceeds basis. This gain needs to be included in current E&P when calculating what portion of the dividend is taxable to the shareholder.

[Author]

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