[startupcfo]

My basis in a *partnership* is 80,000. The partnership distributes a 145,000 piece of land to me. Whether the basis is over or under $80K I still accept land with a new basis of 80K, right?

What would happen if this was a c-corp or s-corp instead of a partnership? Would it be the same idea?

AUD - 93
BEC - 87
FAR - 77
REG - 77

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Corporate finance leader

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[startupcfo]

Ironically, I opened up MCQ and ran into question #1233

ABC Corporation distributes land with a fair market value (FMV) of $100,000 (adjusted basis of $75,000) to Anna when the corporation's E&P is $350,000. Anna is the sole shareholder. What basis does Anna take in the land and what amount of gain does ABC Corporation recognize, respectively, as a result of this nonliquidating property distribution?

Thread closed

AUD - 93
BEC - 87
FAR - 77
REG - 77

------------
Corporate finance leader

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[tuanxn]

First question:
For partnerships, the question really depends on what your basis in the partnership is and what the basis in the distributed property is. Since your basis in the partnership is below the basis in the distributed property, the partner will take a substituted basis of $80,000 in the property and have a remaining partnership basis of $0.
If the basis in the partnership was above the basis in the distributed property (say $150,000), then the property would take a basis of $147,000 and the remaining basis in the partnership would be $3,000.
–>Note that for partnerships, a sale or exchange has not deemed to have occurred upon distribution.

For S-corps and C-corps, distributions are deemed to be sale/exchanges, so the S-corp or C-corp must recognize gains (but not losses) on distributions of property. So the shareholder will always have a basis of FMV on the distributed property.

Second question:
When the corporation distributes property to the Anna, it is as if the corporation sold the property for FMV. So ABC corp will recognize gain of $25,000 ($100,000 FMV – $75,000 basis) which will increase E&P to $375,000 (Original E&P of $350,000 + gain of $25,000). Anna will recognize a dividend to the extent that ABC has E&P, so Anna recognizes a dividend of $100,000 on the distribution of the land and ABC has an E&P of $275,000 afterwards ($375,000 E&P – $100,000 FMV of distribution). Anna then takes a basis of $100,000 in the distributed land.

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