Evaluate dina''s basis in the land

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Question :

Distribution of Appreciated Property. In the current year, Sedgwick Corporation has $100,000 of current and accumulated E&P. On March 3, Sedgwick distributes to its shareholder Dina a parcel of land (a capital asset) having a $56,000 FMV. The land has a $40,000 adjusted basis (for both taxable income and E&P purposes) to Sedgwick and is subject to an $8,000 mortgage, which Dina assumes. Consider a 34% marginal corporate tax rate.

a. What is the amount and character of the profits Dina recognizes as a result of the distribution?

b. Evaluate Dina's basis in the land?

c. What are the amount and character of Sedgwick's profit or loss as a result of the distribution?

d. What effect does the distribution have on Sedgwick's E&P?

Reference no: EM133592

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