I:17-63 S Corporation Distributions and Basis of Property. Compact Corporation, an S corporation, distributes land used in its business to Clay, its sole shareholder. The land has a

$75,000 adjusted basis and a $125,000 FMV. Clay assumes a $20,000 mortgage secured by the land distributed to him. Immediately before the distribution, Clay’s basis in the Compact stock is $170,000, which includes his share of ordinary income and separately stated items for the current year (other than any gains or losses recognized because of the distribution). Compact always has been an S corporation.

a. What are the tax consequences of the distribution to Compact and Clay?

b. What is Clay’s basis in the land?

c. How would your answer to Part a change if the land instead had a $100,000 adjusted basis and a $75,000 FMV?