During the current year, Zeta Corporation distributes the assets listed below to its sole shareholder, Susan. For each asset listed, determine the gross income recognized by Susan, her basis in the asset, the amount of gain or loss recognized by Zeta, and the effect of the distribution on Zeta’s E&P. Assume that Zeta has an E&P balance exceeding the amount distributed and is subject to a 34% marginal tax rate. Unless stated otherwise, adjusted bases for taxable income and E&P purposes are the same.
a. A parcel of land used in Zeta’s business that has a $200,000 FMV and a $125,000 adjusted basis.
b. Assume the same facts as in Part a except that the land is subject to a $140,000 mortgage.
c. FIFO inventory having a $25,000 FMV and an $18,000 adjusted basis.
d. A building used in Zeta’s business having an original cost of $225,000, a $450,000 FMV, and a $150,000 adjusted basis for taxable income purposes. Zeta has claimed $75,000 of depreciation for taxable income purposes under the straight-line method. Depreciation for E&P purposes is $60,000.
e. An automobile used in Zeta’s business having an original cost of $12,000, an $8,000 FMV, and a $5,760 adjusted basis. For taxable income purposes, Zeta has claimed $6,240 of MACRS depreciation on the automobile. For E&P purposes, depreciation is $5,200.
f. Installment obligations having a $35,000 face amount (and FMV) and a $24,500 adjusted basis. The obligations were created when Zeta sold a Sec. 1231 asset.