Esau transfers cash of $$200,000$ and land $($FMV of $$150,000$; adjusted basis of $$125,000)$ to Eden Corporation for $100\%$ of the stock

in Eden. In the first year of operation, Eden has net taxable income of $$85,000.$ If Eden distributes $$50,000$ to Esau, what is the

correct response?

Eden Corporation reduces its basis in the land to $$100,000.$

Esau has no taxable income from the distribution.

Eden Corporation has a tax deduction of $$50,000.$

Esau has taxable income of $$50,000.$