Puffin Corporation makes a property distribution to its sole shareholder, Bonnie. The property distributed is a building (basis of $30,000, fair market value of $200,000) that is subject to a $16,000 liability which Bonnie assumes. Puffin has no accumulated E&P and $30,000 of current E&P from other sources during the year. What is Puffin's E&P after taking into account the distribution of the car

Question 4 options:

$0

$6,000

$10,000

$16,000

None of the above.

correct option is $16,000

Explanation:

given data

basis = $30,000

fair market value = $200,000

liability = $16,000

current E&P = $30,000

to find out

Puffin's E&P after taking into account the distribution

solution

we know that E and P will decrease by higher of the adjusted basis and fair market value of the distributed property

so distribution loss is not taken into consideration to find out E and P

and we have given current E & P of Puffin is = $30,000 that is reduce to

reduce = basis - liability

reduce = $30000 - $16000 = $14000

so after distribution current E & P remaining will be $16000

so correct option is $16,000