S corporation

CPA Exam Forum The Forum REG Review S corporation

This topic contains 3 replies, has 2 voices, and was last updated by  Soproudofmyself 4 years, 6 months ago.

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  • #166912

    Soproudofmyself
    Participant

    When an S corporation distributes property to a sharedholder with a FMV greater than NBV, does the S corporation recognize a gain? Similar to how a C Corporation would recognize it?

    #327873

    drg1983
    Participant

    Yes, it’s treated as if the S Corp sold the property to the shareholder for FMV and the S Corp recognizes gain. Losses on distributions where FMV < Adjusted Basis are disallowed and reduce the shareholder’s stock basis. Shareholder’s basis in distributed property is FMV whether gain or loss.

    #327874

    Soproudofmyself
    Participant

    Thanks!

    So the S corporation recognizes a gain on property distribution to shareholder (FMV – Basis = lets say $10k), the shareholders basis increases by $10k (if this shareholder owns 100% of the stock), and then the shareholders basis decreases by the FMV of the property distributed from the S Corporation?

    Shareholder Basis:

    Initial Basis

    +Income items (separately and nonseparately stated) – this section would include the 10k

    +Additional shareholder investments in corp stock

    -Distributions to shareholders – this section would include the FMV of property received

    -Loss or expense – loss could only be taken up to the basis (which includes the amount of loans to corporation o/s)

    =Ending balance

    Just want to make sure I understand it…

    Any other thoughts? =/

    #327875

    Soproudofmyself
    Participant

    whoa! what if the property distributed to the S shareholder was initially the ownership of a C corporation and it had a built-in-gain? Then the corporation would be taxed on the gain at the C level! Plus the shareholder would pay taxes on that gain as well..there goes the double taxation again!

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