George owns 100% of the stock of Yahoo. Yahoo has E&P of $20,000 and George has...
George owns 100% of the stock of Yahoo. Yahoo has E&P of $20,000 and George has a basis of $100,000 in Yahoo corporation stock prior to the events noted below.
Yahoo assets:
1. Grange Land with adjusted basis $100,000, fair market value $400,000
2. Lake Land with adjusted basis $800,000, fair market value $400,000
Ignore tax liability when adjusting for E&P.
A. Yahoo makes an operating distribution of Grange to George. Yahoo's recognized gain is $300,000, increases E&P by $300,000. What is George's basis in Grange after the distribution? What is George's recognized gain/loss with respect to the distribution? What is the character of such gain/loss?
Homework Answers
ANSWER:-
As per publication 542 ,if property is distributed to shareholders , Then corporation will report gain if FMV is greater than adjusted basis , this is the same treatment as corporation will report if property is sold and the gain recognized will increase the E&P of company by that amount.
Yahoo makes grange land distributed to george
Recognized Gain = FMV - Adjusted BAsis
= 400000-100000
=$ 300000
Recognized gain = $ 300000
And increased in E&P will be =$ 300000
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George owns 100% of the stock of Yahoo. Yahoo has E&P of
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