A C Corporation distributes land to a shareholder as a nonliquidating distribution. The land has a basis of $40,000 and an FMV of $90,000. The corporation has ample E&P. What are the tax consequences to the corporation?

Answer options:

No gain or loss recognized.

Recognized loss of $50,000.

Recognized gain of $50,000.

Recognized gain of $90,000.

How to approach this question

Apply IRC §311(b). Corporation recognizes gain on distribution of appreciated property as if sold for FMV. $90k - $40k = $50k gain.

Full Answer

C.Recognized gain of $50,000.✓ Correct

IRC §311(b). A corporation recognizes gain on the distribution of appreciated property (FMV $90,000 - Basis $40,000 = $50,000 gain). Losses are not recognized.

Common mistakes

Thinking distributions are tax-free to the corporation.

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