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:

Competitive Advantages

Attributes that allow a business to outperform its competitors, such as superior quality, lower production costs, or unique products.

Unique Skills

Unique skills refer to the distinctive competencies or abilities that individuals or organizations possess, setting them apart from their competitors.

Technology Developed

Technology developed refers to the creation and implementation of new technical methods, tools, or devices to improve products or processes.

Mission Statement

A formal summary of the aims and values of a company, organization, or individual.