In the current year, Sedgwick has $100,000 of current and accumulated E&P. On March 3, Sedgwick distributes to its shareholder Dina a parcel of land (a capital asset) having a $56,000 FMV. The land has a $40,000 adjusted basis (for both taxable income and E&P purposes) to Sedgwick and is subject to an $8,000 mortgage, which Dina assumes. Assume a 21% corporate tax rate.
a. What are the amount and character of the income Dina recognizes as a result of the distribution?
b. What is Dina’s basis in the land?
c. What are the amount and character of Sedgwick’s gain or loss as a result of the distribution?
d. What effect does the have on Sedgwick’s E&P?
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