In the Current Year, Red Corporation Has $100,000 of Current

Essay

In the current year, Red Corporation has $100,000 of current and accumulated E&P. On March 2, Red Corporation distributes to Randy, a shareholder, a parcel of land (a capital asset)having a $60,000 FMV. The land has a $30,000 adjusted basis (for both tax and E&P purposes)to Red Corporation and is subject to an $8,000 mortgage, which Randy assumes. Assume a 34% marginal corporate tax rate.
a)What is the amount and character of the income Randy recognizes as a result of the distribution?
b)What is Randy's basis for the land?
c)What is the amount and character of Red Corporation's gain or loss as a result of the distribution?
d)What effect does the distribution have on Red Corporation's E&P?