1. A corporation sells property (basis of $500,000) to its sole shareholder for
ID: 2396074 • Letter: 1
Question
1. A corporation sells property (basis of $500,000) to its sole shareholder for $450,000, the fair market value of the property. With respect to the sale: Does the corporation have a tax loss of $50,000? Why or why not?
2.MPC Corporation makes a property distribution on 12/31/16 to its sole shareholder, Jon. The property distributed is a house (fair market value of $500,000; basis of $300,000) that is subject to a $50,000 mortgage that Jon assumes. Before considering the consequences of the distribution, MPC’s current E & P before the distribution is $75,000 and its accumulated E & P is 100,000. MPC makes no other distributions during the current year.
What is MPCs taxable gain on the distribution of the house?
What is MPC’s current E&P after the distribution on 12/31/16?
What is Jon’s taxable gain (if any) and what type of gain is it?
Explanation / Answer
Ans 1 No, as per section 336 no loss is allowed to the corporation if the FMV is less than the adjusted basis of the property. In this case corporation property value is $500000 but its FMV of $450000 but due to section 336 the tax loss of $50000 is not allowed. Only it is allowed if is a case of liquidtion. Dear student I have done the first question
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