Thrush, Inc

Essay

Thrush, Inc., is a calendar year, accrual basis corporation with Henry as its sole shareholder (basis in his stock is $90,000). On January 1 of the current year, Thrush Corporation has accumulated E & P of $200,000. Before considering the effect of the distribution described below, the corporation's current E & P is $50,000. On November 1, Thrush distributes an office building to Henry. The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $110,000. Assume that the building has been depreciated using the ADS method for both income tax and E & P purposes. What are the tax consequences of the distribution to Thrush and to Henry? (In your answer, be sure to describe the effects on taxable income for both Thrush and Henry, the impact of the distribution on Thrush's E & P, and Henry's basis in the building.)