Montclair Corporation Had Current and Accumulated E&P of $500,000 at December

question 74

Multiple Choice

Montclair Corporation had current and accumulated E&P of $500,000 at December 31, year 1.On December 31, the company made a distribution of land to its sole shareholder, Molly Pitcher.The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000.Molly assumed a liability of $25,000 attached to the land.The tax consequences of the distribution to Montclair in year 1 would be (assume a 0 percent marginal tax rate for Montclair) :

• A)No gain recognized and a reduction in E&P of $200,000.
• B)$150,000 tax and E&P gain recognized and a reduction in E&P of $200,000.
• C)$150,000 tax and E&P gain recognized and a reduction in E&P of $175,000.
• D)No gain recognized and a reduction in E&P of $175,000.

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