Question

If a distribution of stock or stock rights is taxable, the distribution amount equals the FMV of the stock or stock rights on the distribution date. Is this the same treatment for a property distribution?

A. Yes
B. No
C. Depends on the shareholder's tax bracket
D. Only applies to closely-held corporations
E. A and B only

Answer 1

The tax treatment of property distributions to shareholders is generally the same as stock or stock rights, being valued at fair market value on the date of distribution, not affected by the shareholder's tax bracket or the nature of the corporation.

Step-by-step explanation:

When we consider the tax treatment of distributions whether in stock, stock rights, or property, it's crucial to understand that the general rule is that these distributions are valued based on their fair market value (FMV) on the date of distribution. If we talk specifically about property distributions to shareholders, these too are usually taxed at FMV on the distribution date. However, the answer to whether the same applies to property as to stock or stock rights is: Yes, with the caveat that certain adjustments, basis considerations, and potential liabilities might affect the calculation of gain or distribution amount for property distributions.

It is important to note that the shareholder's tax bracket is generally not a factor in determining the amount of distribution; rather, it is the value of the distribution that matters. Therefore, the applicability of this treatment to closely-held corporations, as well as any other corporation, remains consistent; these rules do not exclusively apply to closely-held corporations.