Barry and Lynette Majors own 36 percent of the outstanding stock of Echo Valley, which has approximately
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Barry and Lynette Majors own 36 percent of the outstanding stock of Echo Valley, which has approximately $5 million earnings and profits. Echo Valley owns 38 tracts of undeveloped land in central Colorado. Barry and Lynette want to acquire one of the tracts (tract D6) to develop as a campground and recreational park. The appraised FMV of tract D6 is $420,000 although the corporation’s tax basis is only $211,000. At the most recent shareholder meeting, Barry and Lynette convinced the other share-holders to distribute tract D6 to them as a dividend. (The other shareholders would receive equivalent cash dividends proportionate to their stock ownership.) Would the distribution of tract D6 as a dividend be a taxable event to Echo Valley? How much dividend income would the Majors recognize, and what would be their tax basis in tract D6?
Distribution The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...Dividend A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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