Speed Corporation has current E&P of $200,000 and accumulated E&P of $100,000. It makes a distribution of land to its shareholder Bill. Bill’s stock basis is $600,000. The land was purchased by Speed two years ago for $400,000 and at the time of the distribution has FMV of $550,000. Bill owns 75 shares, his sister owns 10 shares and the remaining 15 shares are owned by an unrelated party.
- What are the tax consequences to Speed and Bill if this is a non liquidating distribution?
- What are the tax consequences to Speed and Bill if this is a liquidating distribution?
- What are the tax consequences to Speed and Bill if this is a stock redemption and Speed redeems 40 of Bill’s shares in exchange for the land?
- Which scenario (a, b, c) would you advise Speed and Bill to proceed with? Why?
