Question

Catamount Company had current and accumulated E&P of $500,000 on December 31, 20X3. On December 31, the company made a distribution of land to its sole shareholder, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in 20X3 would be: ____________ .

Answer 1

Here no loss would be recognized by by the Catamount company but there will be an decrease in E&P of $250,000.

Step-by-step explanation:

Given information - Accumulated E&P ( EARNINGS AND PROFITS ) $500,000

Land distributed - $200,000 ( market value )

E&P basis was $250,000

Here the company is giving its shareholder a land and since the earnings and profits here are exceeding the distribution amount , no loss would be recognized and there will be reduction in earning and profits of the company of $250,000.