Question

Tiger, Inc., a calendar year S corporation, is owned equally by four shareholders: Ann, Becky, Chris, and David. Tiger owns investment land that was purchased for $160,000 four years ago. On September 14 of the current year when the land is worth $240,000, it is distributed to David. Assume that David's basis in his S corporation stock is $270,000 on the distribution date.

Required:
Discuss any Federal income tax ramifications.

Answer 1

Capital gain $80,000

Shareholder $20,000

David Basis $50,000

Step-by-step explanation:

Calculation to Discuss any Federal income tax ramifications

Calculation to discuss the CORPORATE LEVEL, capital gain Federal income tax ramifications

Using this formula

Capital gain =Land Worth - Purchased value of land

Let plug in the formula

Capital gain= $240,000 - $160,000

Capital gain= $80,000

Therefore CORPORATE LEVEL, capital gain Federal income tax ramifications will be $80,000

SHAREHOLDERS

Based on the information given we have 4 shareholders which means that the amount each shareholder held will be:

Shareholder= $80,000 ÷ 4

Shareholder= $20,000

DAVID BASIS

Based on the information given David Basis in S corporation will be calculated as:

David Basis= $270,000 - $240,000 + $20,000

David Basis= $50,000

Therefore David Basis in S corporation will be $50,000