Field Corporation reported current earnings and profits for 20X3 of $500,000. During the year, the company...

Field Corporation reported current earnings and profits for 20X3 of $500,000. During the year, the company made a distribution of land to its sole shareholder, Mary. i. The land's fair market value was $130,000 and its adjusted basis in Field was $80,000. ii. Mary assumed a mortgage attached to the land of $25,000. a. What amount of dividend income does Mary report because of the distribution (assume sufficient E&P for dividend treatment)? b. What is Mary's income tax basis in the land received from Field? c. What is the result for Field Corporation's taxable income? d. What is Field Corporation's Accumulated E&P reduction? Enter as a positive number.

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Expert Solution

In the above question Field Corporation has distributed land to its sole share holder

a) As per the Incomr tax Act any assets distributed by the company in this case Field Corporation to its shareholder I.e Mary to the extent the company possesses accumulated profit whether capitalised or not shall be treated as deemed Dividend.

Fair Market value of the asset on the date of distribution will be considered to compute deemed dividend.

In this case since the company has sufficient E&P the entire Fair value of Land will be considered as deemed dividend. Hence $130000 shall be reported as dividend Income.

b) Marys income tax basis in the land received will be the FMV of the land on the date of distribution i.e $130000.

c) Field corporations taxable income will not be impacted by this transaction and hence he will have to pay tax on the entire $500000 assumed it is a taxable income.

d) Field Corporations Accumulated profits will reduce by $ 130000.

ekkarill92 answered 2 years ago

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