Garry and Marissa formed Anderson Corporation as an S corporation several years ago. Garry and...
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Accounting
Garry and Marissa formed Anderson Corporation as an S corporation several years ago. Garry and Marissa each have a 50% interest in the corporation. At the beginning of the current year, their stock bases are $40,000 each. In the current year, the corporation earns $35,000 of ordinary income. In addition, the corporation distributes property to Garry having a $25,000 FMV and a $34,000 adjusted basis and distributes property to Marissa having a $25,000 FMV and a $10,000 adjusted basis.
Requirements:
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| A. Determine what Garry and Marissa recognize in the current year, and determine their ending stock bases. What bases do Garry and Marissa have in the distributed property? |
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| B. What tax planning disadvantages do you see with these property distributions? |
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| C. How would your answer to Part a change if Garry and Marissa form the Anderson Partnership instead of an S corporation? |
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