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Lynna [10]
4 years ago
15

Tiger, Inc., a calendar year S corporation, is owned equally by four shareholders: Ann, Becky, Chris, and David. Tiger owns inve

stment land that was purchased for $160,000 four years ago. On September 14 of the current year when the land is worth $240,000, it is distributed to David. Assuming that David's basis in his S corporation stock is S270,OOO on the distribution date.
Required:
Discuss any Federal income tax ramifications.
Business
1 answer:
matrenka [14]4 years ago
5 0

Answer and Explanation:

The computation of the federal income tax ramifications are shown below:

At the corporate level, the capital gain is

= Worth of the land - the purchased value of the land four years ago

= $240,000 - $160,000

= $80,000

Since there is four shareholders, so the amount each shareholder held is

= $80,000 ÷ 4

= $20,000

And, the David stock basis drop is

= David basis in S corporation stock - land worth + amount of each shareholder

= $270,000 - $240,000 + $20,000

= $50,000

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