Catamount Company had current and accumulated E&P of $500,000 at December 31, 20X3. On December 31, the company made a distr
ibution of land to its sole shareholder, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in 20X3 would be: A. No loss recognized and a reduction in E&P of $250,000
B. $50,000 loss recognized and a reduction in E&P of $250,000
C. $50,000 loss recognized and a reduction in E&P of $150,000
D. No loss recognized and a reduction in E&P of $200,000
D. No loss recognized and a reduction in E&P of $200,000
Explanation:
Given that:
Current and accumulated E&P : $500,000
A distribution of land to its sole shareholder: $200,000
E&P basis to Catamount : $250,000
From that, we can see that the current and accumulated E&P is greater than its distribution of land so no loss would be reported so there will be reduction in earning and profits of the company of $200,000.
