Question

Rebellion, Inc. distributes property worth $20,000 (adjusted basis = $5,000) to its shareholder, Jerry. Rebellion's current E&P was $100,000 at the time of distribution. What is Jerry's basis in the property received?

Answer 1

Jerry's basis in the property received from Rebellion, Inc. is equal to its fair market value at the time of the distribution, which is $20,000, since Rebellion, Inc. had sufficient E&P.

Step-by-step explanation:

Jerry's basis in the property received from Rebellion, Inc.

is determined by Internal Revenue Code regulations dealing with distributions from corporations to shareholders. In this scenario, Rebellion, Inc.

distributes property with a fair market value of $20,000 to its shareholder, Jerry. However, the company has sufficient earnings and profits (E&P), totaling $100,000 at the time of distribution.

Therefore, the basis of the property to Jerry is equal to its fair market value at the time of distribution. Consequently, Jerry's basis in the property would be $20,000.