Reference no: EM133115510

Question - Allen, an individual, owns all of the outstanding stock in Copperhead Corporation. Allen purchased his stock in Copperhead seven years ago, and his basis is $64,000. At the beginning of this year, the corporation has $65,000 of accumulated E & P and no current E & P (before considering the effect of the distributions as noted below). What are the tax consequences to Allen (amount and type of income and basis in property received) and Copperhead Corporation (gain or loss and effect on E&P) in each of the following situations?

a. Copperhead distributes land to Allen. The land was held as an investment and has a fair market value of $74,000 and an adjusted basis of $47,000.

b. Assume that Copperhead Corporation has no current or accumulated E & P prior to the distribution. How would your answer to part (a) change?

c. Assume that the land distributed in part (a) is subject to a $66,000 mortgage (which Allenassumes). How would your answer change?

d. Assume that the land has a fair market value of $74,000 and an adjusted basis of $82,000 on the date of the distribution. How would your answer to part (a) change?

e. Instead of distributing land in part (a), assume that Copperhead decides to distribute equipment used in its business. The equipment has a $14,000 market value, a $1,200 adjusted basis for income tax purposes. When the equipment was purchased four years ago, its original fair market value was $18,000.