Question

Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel. In the first year of operation, Camel has net taxable income of $70,000. If Camel distributes $50,000 to Adam:

Answer 1

Answer:

This question is incomplete, the complete question is:

Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel. In the first year of operation, Camel has net taxable income of $70,000. If Camel distributes $50,000 to Adam:

a. Adam has taxable income of $50,000.

b. Camel Corporation has a tax deduction of $50,000.

c. Adam has no taxable income from the distribution.

d. Camel Corporation reduces its basis in the land to $150,000.

e. None of the above.

The correct choice is A.

Adam's dividend of $50,000 will be taxable. Camel Corporation will not be deducted for the $50,000 payment because dividends are not deductible by the distributing corporation.