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 $536,200 and a fair market value of $321,720. What are the tax consequences of this distribution to Quinlan? If an amount is zero, enter "0". As a result of the distribution, Quinlan Corporation has a realized of $ of which $ is recognized. The shareholder received property with a basis of $

Answer 1

1.Quinlan distribution has realized a loss of

$214,480 of which $0 is recognized.

2. The shareholder received property with a basis of $321,720

Step-by-step explanation:

1.

When property is been said to be distributed to shareholders the amount of dividend equal to the fair value of the said property which is $321,720 on the date of the distribution. Therefore the amount of taxable dividend is $321,720 which is before the dividends received deduction.

Therefore;

Net loss which shall not be allowed ($536,200-$321,720)

=$214,480

Quinlan distribution has realized a loss of

$214,480 which is not allowed to be recognized

2. Adjusted basis of the property distributed is $321,720