[jeff]

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Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Brisk Corp. is an accrual-basis, calendar-year C corporation with one individual shareholder. At year end, Brisk had $600,000 accumulated and current earnings and profits as it prepared to make its only dividend distribution for the year to its shareholder. Brisk could distribute either cash of $200,000 or land with an adjusted tax basis of $75,000 and a fair market value of $200,000. How would the taxable incomes of both Brisk and the shareholder change if land were distributed instead of cash?

Brisk's taxable income Shareholder's taxable income

No change No change

Increase No change

No change Decrease

Increase Decrease

[REGTaker]

Whew. I am notorious for overthinking these problems.

[Anonymous]

That showed up weird! Let me know if you need me to post the question better.

[REGTaker]

4-C?

[CPAfit]

@bucky 4- B Increase , No change

[jimmymac814]

I know we are beating this one to the ground. But I just want to make sure I am following the logic, sorry to back track so much, i was working on sims and didnt refresh for a while. But 1 is D-1,000 because taxable income is calculated before any special deductions (ex- DRD). therefore all of the dividends rec'd (1,000) are going to be included in TI?

[terryharm]

Brick would increase Shareholder no increase

BEC: 81
FAR: 75
AUD: 81
REG: 85

PA license Pending..

[CPAfit]

@jimmy yes, from the above explanation given by @regtaker that's what I've understood

[REGTaker]

I thought corporation would treat it as a distribution at FMV so 200=200, no change. Am I wrong about this?

[Anonymous]

It's B (Bisk Increase/Shareholder no change) – If Brisk distributes $200,000 cash the shareholder will have $200,000 of dividend income (since sufficient earnings and profits exist). It the land is distributed, the amount of the distribution is the land's fair market value of $200,000 so the shareholder would still have $200,000 of dividend income. Thus, there is no change for the shareholder's taxable income.

If Brisk distributes appreciated property as a dividend, it must recognize the appreciation in the property as income ($200,000 – $75,000 = $125,000). Therefore, Brisk would have higher taxable income if the land was distributed in comparison to the cash.

[Anonymous]

The corp has to take a gain on the change in FMV – the distribution is looked at like a sale.

[terryharm]

I have a question about the M1 reconciliation and executive compensation. If the Presidents salary was $1.5m, is that an adjustment and reconciling item between income and taxable income on the M1

BEC: 81
FAR: 75
AUD: 81
REG: 85

PA license Pending..

[REGTaker]

Dang it! I got them confused again.

[jimmymac814]

@zubairs, thank you!

[Anonymous]

@terryharm – I'm not sure how to answer that – isn't executive compensation the same book and tax?

[Author]

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