[zi007ad]

Today i was studying corporate taxation and i was wondering whats the difference between distributing appreciated property in S and C corporations ?

thanks ! 🙂

*COLORADO*
REG: 58,41,74,74,74,74,77
BEC: 67,76*,79
FAR: 62,68,60,75
AUD: 76*,64,66,81
* Expired

[Anonymous]

I'm curious about this, too. Can someone explain what's different between the two? I would guess the S Corporation is treated more like a partnership distribution?

[Noct]

Property distributions are recorded at FMV so if the property is appreciated, there will be a recognition of gain.

An S-Corp will pass that gain through to it's shareholders prorata. The recipient will pay no tax on the distribution as long as the FMV doesn't exceed their basis.

A C-Corp will pay tax on the gain at the corporate level and issue a 1099-DIV to the recipient of the property who will be taxed for the entire FMV.

On a side note, in either case distributions must be made in proportion to ownership (assuming the same class of shares for a C-Corp) so the other shareholders must receive a distribution of proportionately equal value.

FAR - 79 - 07/2012
AUD - 65, 78 - 11/2012
BEC - 76 - 11/2012
REG - 78 - 01/2013
ETH - 98 - 01/2013

Material: Wiley books

[Anonymous]

Thank you for your insight. You seem to really understand this stuff. Here's another question…

If the property was originally contributed to the corporation by an individual (assume there is only one shareholder total), what would the shareholder's basis throughout each event? Can you walk me through the series of events in terms of the amount recorded by the shareholder?

[mrwills12]

When an individual contributes property to a corporation their basis in the corporation is their basis in the property at the time of contribution. It is lowered by any debt relieved by the corporation at the time of contribution. The shareholder's basis for a corporation can only go up if they contribute more property/cash to the corporation. However, the shareholder's basis can only decrease if they get a return of capital distribution (i.e dividends in excess of E&P and AE&P).

If a corporation distributes appreciated property, the corporation recognizes a gain to the extent of the greator of the FMV – the basis or Liabilities distributed – Basis. This gain is added to E&P, and taxable dividends are recognized by each shareholder in the amount of E&P.

The individual then in turn recognizes taxable income as a dividend from appreciated property to the extent of FMV – liabilities received from the corporation. Remember however, the individual's basis in the property will be the FMV of the asset regardless of any liabilities received.

FAR - 88 (Jul 2012)
AUD - 85 (Oct 2012)
BEC - 82 (Nov 2012)
REG - 92 (Jan 2013) DONE!

Using Becker Self Study 2012

[Anonymous]

Thank you very much! The basis topics are a mess for me.

[Noct]

Not to try and overcomplicate this, but mrwillis12's basis explanation only applies to a C-Corp. In an S-Corp, you also receive basis for undistributed earnings. It's a small detail, but the lesson is that basis in C-Corp stock is fairly constant and only changes with contributions/returns of capital, but basis in S-Corp stock is always changing.

FAR - 79 - 07/2012
AUD - 65, 78 - 11/2012
BEC - 76 - 11/2012
REG - 78 - 01/2013
ETH - 98 - 01/2013

Material: Wiley books

[Author]

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