Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative. True OR False

Question

Felix Huynh

Business

31 December, 01:05

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative. True OR False

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Quinn Cameron · Answer 1

True

Explanation:

As for calculating the gain or loss on distribution of any asset, in any case the company shall consider the fair market value at the time of distribution, and accordingly, the gain or loss shall be:

Fair market value - Tax basis of such asset.

Here, in the given instance

Fair market value of land = $200,000

Tax basis of land = $50,000

Thus, gain on distribution = $200,000 - $50,000 = $150,000

This will not be different in any case, whether the earnings are positive or negative.

Therefore, the statement is True