McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 41

Carolina Corporation, an S corporation, has no corporate E P from its years as a C corporation. At the end of the year, it distributes a small parcel of land to its sole shareholder, Shadiya. The fair market value of the parcel is $70,000 and its tax basis is $40,000. Shadiya's basis in her stock is $14,000. Assume Carolina Corporation reported zero taxable income before considering the tax consequences of the distribution.
a. What amount of gain or loss, if any, does Carolina Corporation recognize on the distribution
b. How much gain must Shadiya recognize (if any) as a result of the distribution, what is her basis in her Carolina Corporation stock after the distribution, and what is her basis in the land
c. What is your answer to (a) if the fair market value of the land is $25,000 rather than $70,000
d. What is your answer to (b) if the fair market value of the land is $25,000 rather than $70,000