Zane, an individual, owns all of the outstanding common stock in XYZ Utilities Corporation. Zane purchased his XYZ stock seven (7) years ago and his basis is $8,000. Before the transactions listed below, XYZ has $25,000 of accumulated earnings and profits and no current earnings and profits. Determine the tax consequences to Zane and XYZ in each of the following alternative situations: (c) XYZ distributes land ($20,000 FMV, $11,000 basis) which it has used in its business. Zane takes the land subject to a $16,000 mortgage. (d) Assume XYZ has $15,000 of current earnings and profits (in addition to its $25,000 accumulated earnings and profits) and it distributes to Zane land ($20,000 FMV, $30,000 basis) which it held as an investment. Compare this result if XYZ first sold the land and then distributed the proceeds. (e) XYZ distributes machinery used in its business ($10,000 FMV, zero adjusted basis for tax purposes, and $2,000 for earnings and profits purposes). The machinery is five year property and has a class life of seven years, was purchased by XYZ for $14,000 on July 1 of year one (no section 179 election was made), and the distribution was made on January 1 of year seven.
Zane, an individual, owns all of the outstanding common stock in XYZ Utilities Corporation. Zane purchased his XYZ stock seven (7) years ago and his basis is $8,000. Before the transactions listed below, XYZ has $25,000 of
(c) XYZ distributes land ($20,000 FMV, $11,000 basis) which it has used in its business. Zane takes the land subject to a $16,000 mortgage.
(d) Assume XYZ has $15,000 of current earnings and profits (in addition to its $25,000 accumulated earnings and profits) and it distributes to Zane land ($20,000 FMV, $30,000 basis) which it held as an investment. Compare this result if XYZ first sold the land and then distributed the proceeds.
(e) XYZ distributes machinery used in its business ($10,000 FMV, zero adjusted basis for tax purposes, and $2,000 for earnings and profits purposes). The machinery is five year property and has a class life of seven years, was purchased by XYZ for $14,000 on July 1 of year one (no section 179 election was made), and the distribution was made on January 1 of year seven.
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