d. John would recognize a $50,000 dividend ($81,000 FMV - $31,000 liability assumed). Jamaica would recognize $59,000 of ordinary income under Sec. 1245, the amount by which the $81,000 FMV exceeds Jamaicas tax basis in the equipment distributed. Jamaicas E&P would be increased by the $41,000 ($81,000 FMV - $40,000 E&P adjusted basis) E&P gain and reduced by the equipments net FMV of $50,000 ($81,000 FMV - $31,000 liability) and by the $12,390 ($59,000 x 0.21) tax on the gain, for a net reduction of $21,390 ($41,000 - $50,000 - $12,390). The disadvantage of this choice is similar to that in Part Jamaica must recognize a $59,000 gain even though it has not sold the equipment and has not received any cash.

e. John would recognize a $50,000 dividend and take a $50,000 basis in the installment obligation. Jamaica would recognize an $18,000 capital gain in the year it distributes the obligation. Its E&P would be increased by the $18,000 gain (assuming taxable income basis and E&P basis are equal) and decreased by the obligations $50,000 FMV and by the $3,780 ($18,000 x 0.21) of federal tax on the gain, for a net reduction of $35,780 ($18,000 - $50,000 - $3,780). The disadvantage of this choice is that Jamaicas gain on the installment obligation is accelerated to the year of distribution instead of spread over the term of the note.

Please give me some specific reasons and background knowledge behind the answers d and e.

John owns all 100 shares of stock in Jamaica Corporation, which has $100,000 of current E&P. John would like to receive a $50,000 distribution from the corporation. Jamaica owns several assets that it could distribute to John. What are the tax consequences of Jamaica's distributing each of the following assets? Jamaica has a 21% tax rate and, un- less stated otherwise, its bases for E&P and taxable income purposes are the same. a. $50,000 cash. b. 100 shares of XYZ stock purchased two years ago for $10,000 and now worth $50,000. c. 100 shares of ABC stock purchased one year ago for $72,000 and now worth $50,000. d. Equipment purchased four years ago for $120,000 that now has a tax adjusted basis of $22,000 and an E&P adjusted basis of $40,000. John would assume a liability of $31,000 on the equipment. The equipment is now worth $81,000. c. An installment obligation with a face value of $50,000 and a basis of $32,000. Jamaica acquired this obligation three years ago when it sold land held as an investment. f. Would your answers in Parts a-c change if Jamaica redeems 50 of John's shares for cach of the properties listed? g. Based on the foregoing results, which distribution would you recommend? Which distribution(s) should be avoided? h. Would your answers in Parts a-e change if John's 100 shares represented one third of Jamaica's outstanding shares, unrelated parties owned the remaining 200 shares, and Jamaica exchanged all of John's shares for each of the properties listed? i. If John were an investor, would treating the distribution as a sale be preferable to treat- ing the distribution as a dividend? Why or why not