On December 31, a C corporation made a nonliquidating distribution of the following assets to its sole
shareholder:
Land Fair market value 100,000
Adjusted basis 50,000
Patent Fair market value 25,000
Adjusted basis 0
Building Fair market value 50,000
Adjusted basis 150,000
What gain or loss should the corporation recognize as a result of the distribution?
A. $50,000 loss.
B. No gain and no loss.
C. $25,000 gain.
D. $75,000 gain.
Explanation
Choice “D” is correct. When a C corporation distributes assets to its shareholders in a nonliquidating
distribution, the corporation is treated as having sold the assets for fair market value and is subject to
tax on any gain. However, losses are not deductible. So, the corporation would recognize a gain of
$50,000 on the distribution of the land and a gain of $25,000 on the distribution of the patent for a total
gain of $75,000. The $100,000 loss on the distribution of the building is not deductible.
Choice “A” is incorrect. The loss on the distribution of the building is not deductible.
Choice “B” is incorrect. The gains on the distribution of the land and patent are recognized, but the
loss on the distribution of the building is not deductible.
Choice “C” is incorrect. The gain includes the $25,000 gain on the distribution of the patent as well as
the 50,000 gain on the distribution of the land.
**Just want to clarify, you can't net the 3 together to get a total loss of 25k which can be carried back 3 and forward 5? For some reason I feel like I've seen problems where you net all the capital gains/losses together in the current year…I could be making this up though!
FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16
.