16. Cavalier Corporation had current and accumulated E&P of $500,000 at December

Question

16. Cavalier Corporation had current and accumulated E&P of $500,000 at December 31 20X3. On December 31, the company made a distribution of land to its sole shareholder, Tom Jefferson. The land's fair market value was $200,000 and its tax and E&P basis to Cavalier was $50,000. The tax consequences of the distribution to Cavalier in 20X3 would be:

A. No gain recognized and a reduction in E&P of $200,000

B. $150,000 gain recognized and a reduction in E&P of $200,000

C. $150,000 gain recognized and a reduction in E&P of $50,000

D. No gain recognized and a reduction in E&P of $50,000

Explanation / Answer

Answer

B. $150,000 gain recognized and a reduction in E&P of $200,000

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