2.

Under IRC Section 311(b)(2), when a corporation distributes a property, subject to a liability, or the shareholder assumes the obligation of the distributing corporation, the fair market value (FMV) of the property is at least equal to the amount of the liability.

• Assume your client made a non-liquidating distribution with FMV exceeding its adjusted basis.

• What are the potential tax effects to the distributing company (client) and the receivers (shareholders)?

• Propose a plan in which you mitigate the potential tax impact on your client and the shareholders.