Question

Quinlan has ample E & P to cover any distributions made during the year. One distribution made to a shareholder consists of property with an adjusted basis of $150,000 and a fair market value of $90,000. What are the tax consequences of this distribution to Quinlan?

Answer 1

Since the air market value of the property is $90,000, it implies that the shareholder received the property distributed with a basis of of the fair value of $90,000, the company then suffered a loss of $60,000 of which zero amount is recognized.

Step-by-step explanation:

Loss on distribution = Fair market value - Adjusted basis

= $90,000 - $150,000

Loss on distribution = $60,000

Since the air market value of the property is $90,000, it implies that the shareholder received the property distributed with a basis of of the fair value of $90,000, the company then suffered a loss of $60,000 of which zero amount is recognized.