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14 January, 15:25

Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel. In the first year of operation, Camel has net taxable income of $70,000. If Camel distributes $50,000 to Adam:

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  1. 14 January, 15:53
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    This question is incomplete, the complete question is:

    Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel. In the first year of operation, Camel has net taxable income of $70,000. If Camel distributes $50,000 to Adam:

    a. Adam has taxable income of $50,000.

    b. Camel Corporation has a tax deduction of $50,000.

    c. Adam has no taxable income from the distribution.

    d. Camel Corporation reduces its basis in the land to $150,000.

    e. None of the above.

    The correct choice is A.

    Adam's dividend of $50,000 will be taxable. Camel Corporation will not be deducted for the $50,000 payment because dividends are not deductible by the distributing corporation.
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