2. Fargo Corporation distributes property (basis of $260,000 and fair market value of $310,000) to a shareholder. Fargo Corporation has sufficient E & P for its distributions. What are the tax consequences of this distribution to Fargo?

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Business

Clyde

29 January, 19:03

2. Fargo Corporation distributes property (basis of $260,000 and fair market value of $310,000) to a shareholder. Fargo Corporation has sufficient E & P for its distributions. What are the tax consequences of this distribution to Fargo?

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Snow White · Answer 1

The distribution by Fargo corporations has the following tax consequences

The corporation has distributed an appreciated property (that on its own makes it liable for tax) The corporation must recognize the gains or losses made on the distribution as if the corporation was selling the property to the shareholder. Apply capital gains tax on the gains or losses capital gain = $310000-$260000 = $50000 Apply any annual exclusion and multiply by the Capital Gains Tax to arrive at Taxable Capital Gain to be included in incomes

The shareholder will recognize dividend received in the market value and will be subject to exemptions if applicable.