Determining how the distribution is treated for tax purposes

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1. Orange Corporation distributes $200,000 in cash to each of its three shareholders: Sandy, Byron, and Fuchsia Corporation. What factors must be considered when determining how the distribution is treated for tax purposes by the shareholders?

2. Raven Corporation owns three machines that it uses in its business. It no longer needs two of these machines and is considering distributing them to its two shareholders as a property dividend. All three machines have a fair market value of $20,000 each. The basis of each machine is as follows: Machine A, $27,000; Machine B, $20,000; and Machine C, $12,000. The corporation has asked you for advice. What do you recommend?

Reference no: EM133205851

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