Description

XYZ Corporation, a C corporation, decides to distribute a piece of real estate $($commercial property$)$ to its shareholders. The property has an adjusted basis of $$1,000,000$ and a fair market value $($FMV$)$ of $$1,500,000$ at the time of distribution.

$(1)$ Calculate the Gain or Loss on the Property Distribution:

Determine the gain or loss realized by XYZ Corporation when distributing the property to its shareholders.

Hint: Consider the adjusted basis and FMV$.$

$(2)$ Tax Treatment for Shareholders:

Explain how this property distribution affects the shareholders' tax liability.

$(3)$ Earnings and Profits $($E&P$)$ Impact:

Analyze how this property distribution influences XYZ Corporation's E&P$.$ Discuss whether the distribution is treated as a dividend or a return of capital.