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13 July, 21:12

Swan Corporation makes a property distribution on 12/31/13 to its sole shareholder, Matthew. The property distributed is a cottage (fair market value of $200,000; basis of $150,000) that is subject to a $35,000 mortgage that Matthew assumes. Before considering the consequences of the distribution, Swan's current E & P is $300,000 and its accumulated E & P is 100,000. Swan makes no other distributions during the current year.

What is Swan's taxable gain on the distribution of the cottage?

What is Swan's current E&P after the distribution on 12/31/13?

What is the taxable dividend to the shareholder (if any) ?

What is the shareholder's basis in hte cottage?

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  1. 13 July, 21:19
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    What is Swan's taxable gain on the distribution of the cottage?

    Fair market value of property = 200000

    Less: adjusted basis of property = 115000 (150000-35000)

    Taxable gain on distribution = 85000

    What is Swan's current E&P after the distribution on 12/31/13?

    Swans current E&P = 300000

    Add: taxable gain on distribution = 85000

    Less: distribution made = 165000 (200000-35000)

    After distribution E&P = 220000

    What is the taxable dividend to the shareholder (if any) ?

    Taxable dividend to shareholders = 200000-35000 = 165000

    What is the shareholder's basis in the cottage?

    Shareholders basis is FMV of property i. e. 200000
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