1 answer

On May 10 of the current year, Newport Corporation distributes to its shareholder Helen $22,000 in...

Question:

On May 10 of the current year, Newport Corporation distributes to its shareholder Helen $22,000 in cash and land (a capital a
On May 10 of the current year, Newport Corporation distributes to its shareholder Helen $22,000 in cash and land (a capital asset) having a $30,000 FMV. The land has a $26,000 adjusted basis (for both taxable income and E&P purposes) and is subject to a $55,000 mortgage, which Helen assumes. Newport has an E&P balance exceeding the amount distributed and is subject to a 21% corporate tax rate. Read the requirements Requirement a. What are the amount and character of the income Helen recognizes as a result of the distribution? Helen Amount of Character of distribution distribution

Answers

Answer

Amount of distribution = $ 22,000

Character of distribution = Dividend

Explanation:

When a property is distributed by a corporation to its shareholders, the value of the property is considered to be its fair Market value less any mortgage against it.

So, Diviednd = $ 30,000 - $ 55,000 = ($ 25,000)

As value canot be nagative, it is taken as zero. Only cash of $ 22,000 is considered.

In case of any doubt, please comment.

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