Jane receives a nonliquidating distribution of land with a fair market value of $30,000 and a basis of $18,000 from Strickland Corporation,an S corporation.Jane's basis in the stock is $46,000.What must Jane and Strickland report as income from the property distribution?
Jane Strickland
A)$-0- $-0-
B)$12,000 $-0-
C)$-0- $12,000
D)$12,000 $12,000

Question

Quizplus · Accepted Answer

When an S corporation makes a nonliquidating distribution to a shareholder, the shareholder's basis in the distributed property is equal to the corporation's adjusted basis in the property. In this case, Jane's basis in the land is equal to Strickland Corporation's adjusted basis of $18,000. Since the fair market value of the land is $30,000, Jane will have a gain of $12,000. However, since this is a nonliquidating distribution and Jane still owns her stock in the S corporation, she does not recognize any gain or loss on the distribution. Strickland Corporation will report the distribution on its tax return as a distribution of property with a fair market value of $30,000 and an adjusted basis of $18,000. The corporation will not recognize any gain or loss on the distribution.

Jane Receives a Nonliquidating Distribution of Land with a Fair