A Corporation Distributes Land and the Related Liability to Meg

question 20

Multiple Choice

A corporation distributes land and the related liability to Meg, its sole shareholder. The land has an FMV of $60,000 and is subject to a liability of $70,000. The corporation has current and accumulated E&P of $80,000. The corporation's adjusted basis for the property is $70,000. What effect does the transaction have on the corporation?

• A)A recognized loss of $10,000; its E&P is reduced by $70,000.
• B)A recognized loss of $10,000; its E&P is unchanged.
• C)No recognized gain or loss; its E&P is reduced by $60,000.
• D)No recognized gain or loss; its E&P is unchanged by the distribution.

---

Definitions:

Protective Rights

Rights granted to minority shareholders or debt holders to protect their interest, which may include veto powers on major corporate actions.

Capital Expenditure

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.

Lender

An individual, financial institution, or entity that provides funds to another with the expectation that the funds will be repaid with interest.

Substantive Rights

Rights that have a significant impact on the valuation, use, or disposition of an asset, often determining control over economic benefits from the asset.