When an S corporation distributes appreciated property to its shareholders, 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 its shareholders, the shareholders who receive the distributed property recognize income on their distributive share of the deemed gain. This is because the built-in gain (appreciation) on the property is passed through to the shareholders as part of their share of the S corporation's taxable income.

When an S Corporation Distributes Appreciated Property to Its Shareholders