When an S corporation distributes appreciated property to all of its shareholders pro rata, the shareholders who receive the distributed property recognize income on their distributive share of the deemed gain.

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When an S corporation distributes appreciated property to all of its shareholders pro rata, the shareholders who receive the distributed property recognize income on their distributive share of the deemed gain. This is known as a "deemed distribution" and is treated as if the S corporation sold the property at its fair market value. The shareholders then recognize their share of the gain as income, even though they did not actually receive cash from the distribution.

When an S Corporation Distributes Appreciated Property to All of Its