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Helen corporation has positive current earnings and profits (E&P) of $60,000. it distributes land worth (fair...

Helen corporation has positive current earnings and profits (E&P) of $60,000. it distributes land worth (fair market value) 44,000 (adjusted basis of 36,000) to Freddie, an individual shareholder. The land is subject to a mortgage of 31,000 which Freddie assumes. Freddie has Taxable income (dividends)of: ?

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Answer #1

Taxation of Noncash Dividends

When property (rather than cash) is distributed, the amount of the dividend equals the fair market value (FMV) of the property on the date of the distribution, reduced by any liabilities assumed by the recipient or to which the property is subject (Sec. 301(b)).

Adjusted basis of land

$ 36000

Fair Market Value of land

44,000

Mortgage on land

31,000

Income recognised by Helan is 44000-36000=8000

Income Recognised by Freddie 44000-31000=13000

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