In the current year, Parker Corporation has $ 220,000 of current and accumulated E&P. On March 3, Parker distributes to its shareholder Joan a parcel of land (a capital asset) having a $ 61,000 FMV. The land has a $ 39,000 adjusted basis (for both taxable income and E&P purposes) to Parker and is subject to a $ 12,000 mortgage, which Joan assumes. Assume a 21% corporate tax rate.

a) What is the amount and character of the income recognized by Betty as a result of the distribution?

b) What is FMV basis for the land?

c) What is the amount and character of Parker's gain or loss as a result of the distribution?

d) What effect does the distribution have on Parker's E&P?

Newco Corporation has asked you to help determine whether it should use the accrual method or the cash method of accounting. What are the tax issues involved in making this determination?

Answer rating: 100% (QA)

a Bettys income as a result of the distribution is calculated as follows FMV of land Land Mortagage ... View the full answer