Question

Turnip, Inc,. an S corporation, distributes a tract of land held as an investment (FMV=$82,000, basis=$22,000) to chang, its sole shareholder. An AAA bypass election was not made. Turnip, Inc. has an AAA balance of $10,000 an OAA balance of $15,000, a PTI balance of $5,000 and an AEP balanc eof $20,000. CHang's basis in his Turnip's stock is $20,000, has and individual marginal tax rate of 33% and a capital gains tax rate of 15%.
What is Turnip's recognized gain on the distribution?
What is the amount of CHang's distribution?

What is turnips ending AAA balance?
What is turnip's ending PTI balance?
What is Turnip's ending AEP balance?
What is Turnip's ending OAA balance?
WHat is the tax impact of the distribution to Chang?
What is Changs basis in the land
What is changs basis in his turnip stock?

Answer 1

since the fair market value is $ 82,000

Basis of land = $ 22,000

gain on distribution = 82,000 - 22,000 = $ 60,000

Chang will be allocated his share of gain i.e $ 60,000

And Chang will consider on land will be $ 82,000

The AAA of Turnip's will be reduced by the fair of Land $ 82,000

Tax impact on Chang of the distributed land = $ 82,000 x 15% = $ 12,300