Roadrunner Corporation distributes property to its sole shareholder, Linda. The

Question

Roadrunner Corporation distributes property to its sole shareholder, Linda. The property has a fair market value of $250,000 and an adjusted basis of $175,000. In addition, the property is subject to a liability of $200,000. Current E&P is $450,000. With respect to the distribution, which one of the following statements is correct?

a. Roadrunner has a gain of $75,000 and Linda has dividend income of $50,000.

b. Roadrunner has a gain of $50,000 and Linda’s basis in the distributed property is $50,000.

c. Roadrunner has a gain of $25,000 and Linda’s basis in the distributed property is $250,000.

d. Roadrunner has a gain of $75,000 and Linda has dividend income of $250,000.

e. None of the above statements are correct.

Explanation / Answer

b.

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