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.

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Definitions:

Rationalization Attribution

The process of explaining an individual's behavior with logical, but not always true, reasons to justify actions or opinions.

Self-Serving Bias

The common human tendency to attribute success to personal characteristics and failures to external factors, thereby protecting self-esteem.

Defensive Attribution

A cognitive bias where individuals attribute causes of accidents or misfortunes to external factors when involving others but to internal factors when it involves themselves, often to shield their ego.

Fundamental Attribution Bias

The tendency to overemphasize personality-based explanations for behaviors observed in others while underemphasizing the role of external factors.