EFG Inc. distributed land to an individual shareholder in a nonliquidating distr

Question

EFG Inc. distributed land to an individual shareholder in a nonliquidating distribution. On the date the land was distributed, EFG Inc. adjusted basis in the land was $20,000, the fair market value of the land was $75,000, and the land was encumbered by a $35,000 mortgage, which liability was assumed by the shareholder. The corporation%u2019s earnings and profits were $300,000 on the last day of the year in which the distribution was made after taking into effect any impact of the distribution on the corporation%u2019s earnings and profits. As a result of the distribution, how much is the amount of dividend income to the shareholder, and what is the shareholder%u2019s basis in the distributed property?

Explanation / Answer

ANSWER c. Dividend income of $40,000 and basis of $40,000.

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