Reference no: EM132674296

Manning Corporation has two shareholders who are brothers: Eli owns 60% of the stock and Peyton owns the remaining 40%. Eli and Peyton have a basis in their stock of $60,000 and $40,000, respectively. As of December 31, 2018, Manning Corporation owns the following assets:

                       Asset Basis            FMV

Cash            30,000                   30,000

Land            12,000               20,000

Equipment      40,000              30,000

Both the land and the equipment are used in the operation of the family business. The equipment has accumulated depreciation of $10,000. Eli had contributed the equipment to the corporation in 2013 when it had a value of $70,000 and basis of $60,000.

The corporation's earnings and profits (determined before considering the effects of the distributions) are allocable to Eli and Peyton as follows:

                                                     Eli                Peyton

Current Earnings and Profits      3,000            2,000

Accumulated Earning and Profits  24,000      16,000

Assume that on December 31, 2019 Manning Corporation distributes the land to Eli.

Problem 1: What impact does this distribution have on earnings and profits? How much do Eli and Peyton get in distributions?