Respuesta :
If Petrel had sold the business property at its fair market value, it would have a recognized loss of $150,000 (290,000 - 140000).
Commercial Distributions :
Distributions made by the pot to its shareholders are treated as follows
- As taxable dividend income to the extent of advanced of
- Current Earning & Profit( CEP) or
- Sum of Current Earning & Profit and Accumulated Earning & Profit before distribution
2. Remaining tip to the extent of shareholders base are treated as non-taxable return of capital which reduces the shareholder's base
3. Tip in excess of E&P and shareholder base are taxable capital gain distributions.
Simplification of Profit :
First we need to calculate the Current Earnings and Profit :
Particulars Amount
Current year taxable income 320,000
Less: Installment sale in the previous year 16,000
Less: Federal Income tax liability disallowed 67,200
Less: Life insurance premium paid for an officer 4,500
Add : Proceeds from the life insurance of an officer 150,000
Current Earnings and Profit 382,300
Analyzing the given data :
Given Accumulated Earning & Profit = $85,000
Thus Sum of Current Earning & Profit and Accumulated Earning & Profit before distribution =$467,300
Also, when an appreciated property is distributed to a shareholder as tip, property is distributed to the shareholder at Fair Market Value and the gain is honored by the pot. still losses are deductible except in the event of complete liquidation of the company.
Thus in the given case, quantum of tip distribution = Acclimated base of the land- Mortgage value = $290,000 - $70,000
= $220,000
Thus the E & P of Petrel Corporation after the property distribution is $ 247,300 (467,300 - 220,000) on December 31.
still, it would have a honored loss of $ 150, 000( 290 , 000 - 140000 ) If Petrel had vended the business property at its fair request value.
Net proceeds from the property after paying off the loan of $70,000 = $140,000 - $70,000 = $70,000
duty saving on the trade of property at loss = $150,000 × 21% = $31,500
After paying off the loan and any levies associated with the trade, Juan receives a tip of $101,500 (70,000 + 31,500).
The E & P of Petrel Corporation after the property trade and distribution of cash to Juan is $365,800 (467,300 - 101,500)
Question is incomplete , missing part is given below :
Petrel Corporation has accumulated E & P of $85,000 at the beginning of the year. Its current-year taxable income is $320,000. On December 31, Petrel distributed business property (land: fair market value of $140,000, adjusted basis of $290,000) to Juan, its sole shareholder. Juan assumes a $70,000 liability on the property. Included in the determination of Petrel's current taxable income is $16,000 of income recognized from an installment sale in a previous year. In addition, the corporation incurred a Federal income tax liability of $67,200, it paid life insurance premiums of $4,500, and received term life insurance proceeds of $150,000 on the death of an officer.
Assume Petrel Corporation is taxed at the 21% tax rate.
The E & P of Petrel Corporation after the property distribution is $_______ on December 31.
What happens if Petrel instead sells the property at its fair market value, used $70,000 of the proceeds to pay off the liability, and then distributed the remaining cash and any tax savings to Juan?
If Petrel had sold the business property at its fair market value, it would have a recognized loss of $_______. After paying off the loan and any taxes associated with the sale, Juan receives a dividend of $_________. The E & P of Petrel Corporation after the property sale and distribution of cash to Juan is $_________.
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