Delta Corp has 2 equal shareholders. Able and Body. Delta and Able & Body are all cash method calendar year taxpayers. On 1/01 of the current year, Delta’s A/E&P was $5,000, and its C/E&P during the present year was $20,000. Each of the E&P figures were computed without any adjustment needed because of the distributions described below. On 7/01 of the present year, Delta distributed some machinery to Able and some equipment to Body. The machinery distributed to Able had an adjusted basis of Delta of $45,000 and a fair market value of $25,000 at the time of distribution. The equipment distributed to Body had an adjusted basis to Delta of $15,000 and a fair market value of $25,000 at the time of distribution. No other distributions were made by Delta during the present year.

1. Assume A & B are both individuals. What is the effect of the July distribution to A & B and to Delta?
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3. Assume that the machinery Delta distributed to Able was subject to a mortgage of $10,000 and the equipment distributed to Body was subject to a mortgage of $10,000. How would this affect your answers to any of the questions in (a) above?
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5. What is the basis to the two shareholders of the respective property received by each shareholder in question (a) & (b) above.