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Zane, an individual, owns all of the outstanding common stock in Sturdley Utilities Corporation. Zane purchased...

Zane, an individual, owns all of the outstanding common stock in Sturdley Utilities Corporation. Zane purchased his Sturdley stock seven years ago and his basis is $8,000. At the beginning of the current year, Sturdley had $25,000 of accumulated earnings and profits and no current earnings and profits. Determine the tax consequences to Zane and Sturdley [gains/losses, basis, etc.] in each of the following alternative situations:

**PLEASE do not just post the same answer to this question that has already been posted, it is entirely incorrect**

(a) Sturdley distributes inventory ($20,000 fair market value; $11,000 basis) to Zane.

(b) Same as (a), above, except that, before the distribution, Sturdley has no current or accumulated earnings and profits.

(c) Sturdley distributes land ($20,000 fair market value; $11,000 basis) which it has used in its business. Zane takes the land subject to a $16,000 mortgage.

(d) Assume Sturdley has $15,000 of current earnings and profits (in addition to $25,000 of accumulated earnings and profits) and it distributes to Zane land ($20,000 fair market value; $30,000 basis) which it held as an investment. Compare the result if Sturdley first sold the land and then distributed the proceeds.

(e) Assume again that Sturdley has $25,000 of accumulated earnings and profits at the beginning of the current year. Sturdley distributes machinery used in its business ($10,000 fair market value, zero adjusted basis for taxable income purposes, and $2,000 adjusted basis for earnings and profits purposes). The machinery is five-year property and has a seven-year class life, was purchased by Sturdley for $14,000 on July 1 of year one when it was fully expensed under § 168(k), and the distribution is made on January 1 of year seven. See I.R.C. §§ 168(g)(2), 312(k)(3) ; Reg. § 1.312–15(d).

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ekkarill92 answered 1 year ago
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