Hey Lauren.. quick question about C Corps. Assuming a normal formation (no boot or recognized gain).. when a shareholder contributes property.. the corp would assume the carryover basis…
THEN, when the C Corp distributes property to the shareholder, the shareholder would use the FMV of the property distributed rather than the basis? does that seem right to you?
Here's an example that I'm referring to and kind of stuck on (see parenthesis at the bottom of the explanation):
Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000. Fall has $40,000 of accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year. At year end, Fall distributed land with an adjusted basis of $30,000 and a fair market value (FMV) of $38,000 to Fox. The land has an outstanding mortgage of $3,000 that Fox must assume. What is Fox's tax basis in the land?
a.
$38,000
b.
$35,000
c.
$27,000
d.
$30,000
Explanation
Choice “a” is correct. Absent information to the contrary, we should assume this distribution is in the form of a dividend (especially because Fox is the sole shareholder). If the shareholder is an individual, the taxable amount of a property dividend from a corporation's earnings and profits is the fair market value of the property received (and the property's basis then becomes that fair market value).
AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE
IM GOING TO BE A CPA!!!!!
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