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Old 01-30-2013, 04:39 PM
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How the shareholder treats a distribution with liability attached?

Let say a C-Corp distributes property to a shareholder.

The property
Basis: $40,000
FMV: $80,000
Loan: $20,000 (Assumed by shareholder)

I know on the corp side. the current earning profit(CEP) will +40,000, and the distribution will be $80,000. And the Liability $20,000 increase the CEP. CEP $60,000, and Distribution $80,000. So $20,000 will reduce the Accumulated Earning and Profit(AEP)


And on the shareholder, the shareholder will report a $80,000 distribution, but how the shareholder treats the loan? what form they should report. And, please correct me if I am wrong.


Please advice.
Thank You.


Last edited by bbmak : 01-30-2013 at 04:58 PM.


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Old 01-31-2013, 02:32 AM
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Join Date: Oct 2010
Posts: 5,231
“I know on the corp side. the current earning profit(CEP) will +40,000, and the distribution will be $80,000. And the Liability $20,000 increase the CEP. CEP $60,000, and Distribution $80,000. So $20,000 will reduce the Accumulated Earning and Profit(AEP)”=========> I guess so. On the distribution by a corporation, with respect to of any property (other than an obligation of such corporation) the fair market value of which exceeds the adjusted basis thereof— the current earnings and profits of the corporation shall be increased by the amount of such excess, $40K in yur case;$80K-40K and d/b is $80K; If property is distributed, the amount of the distribution is considered to be the property’s fair market value.
(2) subsection (a)(3) shall be applied by substituting “fair market value” for “adjusted basis”. For purposes of this subsection and subsection (a), the adjusted basis of any property is its adjusted basis as determined for purposes of computing earnings and profits. In making the adjustments to the earnings and profits of a corporation under subsection ,proper adjustment shall be made for the amount of any liability of the corporation assumed by a shareholder in connection with the distribution. If a corporation's current year earnings and profits (figured as of the close of the year without reduction for any distributions made during the year) are less than the total distributions made during the year, part or all of each distribution is treated as a distribution of accumulated earnings and profits. If a corporation's earnings and profits for the year (figured as of the close of the year without reduction for any distributions made during the year) are more than the total amount of distributions made during the year, all distributions made during the year are treated as distributions of current year earnings and profits.



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