In the Current Year, Red Corporation Has $100,000 of Current

question 73

Essay

In the current year, Red Corporation has $100,000 of current and accumulated E&P. On March 2, Red Corporation distributes to Randy, a shareholder, a parcel of land (a capital asset)having a $60,000 FMV. The land has a $30,000 adjusted basis (for both tax and E&P purposes)to Red Corporation and is subject to an $8,000 mortgage, which Randy assumes. Assume a 34% marginal corporate tax rate.
a)What is the amount and character of the income Randy recognizes as a result of the distribution?
b)What is Randy's basis for the land?
c)What is the amount and character of Red Corporation's gain or loss as a result of the distribution?
d)What effect does the distribution have on Red Corporation's E&P?

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Definitions:

Telephone Interaction

The process of engaging in communication or exchange of information through the use of telephones.

Telephone Effectiveness

The measure of how well telephone communication achieves desired outcomes.

Company Grapevine

Refers to the informal transmission of information, rumors, and gossip within an organization.

Face-to-face

Direct interaction between two or more individuals, physically present in the same location.