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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Starling Corp. distributes property to its sole ...

Resolved Question:

Starling Corp. distributes property to its sole shareholder, Zoe. The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000. Current E&P is $500,000. With respect to the distribution, which of the following statements is correct?
a. Starling has a gain of $15,000 and Zoe has dividends income of $350,000
b. Starling has a gain of $145,000, and Zoe's adjusted basis in the distributed property is $130,000
c. Straling has a gain of $130,000 and Zoe's basis in the distributed property is $350,000
d. Straling has a gain of $145,000 and Zoe has dividend income of $130,000
Submitted: 8 years ago.
Category: Tax
Expert:  RD replied 8 years ago.

Since the fair market value of the property is $350K, the gain to Starling is $145K ($350K-$205K).

However, the stockholder is getting $350K-$220K(liability assumed) and so the distribution (in actual terms) is $130K. Since the Corp has sufficient E&P, this amount of $130K is dividend.

so answer is

d. Straling has a gain of $145,000 and Zoe has dividend income of $130,000

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