20. Tar Heel Corporation had current and accumulated E&P of $500,000 at December

Question

20. Tar Heel 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, William Roy. The land's fair market value was $100,000 and its tax and E&P basis to Tar Heel was $25,000. William assumed a mortgage attached to the land of $10,000. The tax consequences of the distribution to William in 20X3 would be:

A. $100,000 dividend and a tax basis in the land of $100,000

B. $100,000 dividend and a tax basis in the land of $90,000

C. Dividend of $90,000 and a tax basis in the land of $100,000

D. Dividend of $90,000 and a tax basis in the land of $90,000

Explanation / Answer

Answer 20. C. Dividend of $90,000 and a tax basis in the land of $100,000 The dividend amount is the fair market value less the liability assumed. The tax basis od the Land is the Fair Market Value.

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