Consequences to Tom: a) Gain or Loss on Distribution: Tom will recognize a gain or loss on the distribution of the land. The gain or loss is calculated as the difference between the FMV of the land ($40,000) and Tom's basis in the stock ($5,000). In this case, Tom's basis in the stock is less than the FMV of the land, resulting in a gain. Gain on Distribution = FMV of Land - Basis in Stock = $40,000 - $5,000 = $35,000 b) Taxable Income: The gain on the distribution is generally treated as a taxable dividend to the extent of the company's current and accumulated E&P. In this case, TJ Smoothie had no current E&P but had accumulated E&P of $10,000. Therefore, Tom will have taxable income equal to the lesser of the gain on distribution ($35,000) or the accumulated E&P ($10,000). Taxable Income = Lesser of Gain on Distribution or Accumulated E&P = $10,000 Tom will need to report this taxable income on his personal tax return and pay taxes accordingly. tax codes