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

question 11

Essay

In the current year, Red Corporation has $100,000 of current and accumulated E&P. On March 2, Red Corporatio distributes to Randy, a shareholder, a parcel of land (a capital asset) having a $60,000 FMV. The land has a $30,00 adjusted basis (for both tax and E&P purposes) to Red Corporation and is subject to an $8,000 mortgage, which R 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:

Acquiescence

The act of agreeing or submitting to something passively, without protest.

Anecdotal Evidence

Evidence based on personal accounts, observations, or stories, rather than on systematic scientific research or statistics.

Case Studies

A research method involving the detailed examination of an individual or group, providing in-depth data and insights into complex issues.

Systematic

Having a methodical plan or process, characterized by order and planning.