A C Corporation has current year E&P of $50,000 and accumulated E&P of $20,000. It distributes land (Basis $10,000, FMV $40,000) to a shareholder. What is the amount of the dividend to the shareholder?

Answer options:

$10,000

$40,000

$30,000

$70,000

How to approach this question

1. Corp recognizes gain on dist ($30k). 2. E&P increases by gain ($50k + $30k = $80k). 3. Dividend is FMV ($40k). 4. Check if E&P covers it (Yes).

Full Answer

B.$40,000✓ Correct

IRC §301(b). The amount distributed is the FMV ($40,000). Since E&P is sufficient (increased by the gain on distribution), the entire amount is a dividend.

Common mistakes

Using basis as dividend amount.

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