Question

40) & 41) ZEE Corporation distributed property to its sole shareholder, Zachary. The FMV is $50,000, the adjusted basis to ZEE is $10,000 and it had a mortgage of $20,000, which Zachary assumed. Assuming ZEE has sufficient E & P,

40) Zachary received a dividend of

a $10,000

b $20,000

c $30,000

d $50,000

41) Zachary's basis in the property received from ZEE is

a $10,000

b $30,000

c $50,000

d $70,000

Answer 1

Answer

(40) Zachary received a dividend of (c) $30,000.

(41) Zachary’s basis in the property received from ZEE is (c) $50,000.

Provisions and Explanations

(40)

In question it is given that ZEE has sufficient earnings and profits, so the distribution is reported to the shareholder as dividend.

As per I.R.C 301 (b) (1) the amount of distribution shall be the money received plus fair market value of the other property received.

As per I.R.C 301(b)(2) the amount of distribution shall be reduced by the amount of any liability of the corporation assumed by the shareholder.

FMV                                                            = $50,000

Less: Liability Assumed (mortgage) = $20,000

Amount of distribution   $30,000

(41)

As per I.R.C 301 (d) the basis of property received in a distribution shall be the fair market value of such property.

FVM              = $50,000.