CPA Exam — REG (Regulation)Federal Taxation of EntitiesMedium
A client, a C corporation, wishes to distribute appreciated property to its shareholders as a nonliquidating distribution. The property has a fair market value (FMV) of $200,000 and an adjusted basis of $120,000. What is the amount of gain recognized by the distributing C corporation?
- A$80,000
- B$120,000
- C$200,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: A. $80,000
A C corporation recognizes gain on a nonliquidating distribution of appreciated property as if the property were sold at its fair market value. The gain is the difference between the FMV ($200,000) and the adjusted basis ($120,000), which is $80,000.
Why the other options are wrong
- B. This is the adjusted basis of the property, not the recognized gain.
- C. This is the fair market value of the property, not the recognized gain.
- D. This is incorrect. C corporations recognize gain on appreciated property distributions.
C Corp Nonliquidating Property Distribution
A C corporation recognizes gain on the distribution of appreciated property in a nonliquidating distribution, as if it sold the property at its fair market value.
- Gain = FMV - Adjusted Basis
- No loss recognized on depreciated property distributions
- The gain increases the corporation's E&P
Memory trick: C-Corp's gift, if it's high, a taxable gain, it can't deny.