Megan and Melanie organized Beauty Corporation 15 years ago and have each owned 50% of the corporation since its inception. In the current year, Beauty reports ordinary income/ taxable income of $ 40,000. Assume the business does not qualify for the U. S. production activities deduction. On April 30, Beauty distributes $ 200,000 cash to Megan and distributes land with a $ 200,000 FMV and a $ 140,000 adjusted basis to Melanie. Beauty had purchased the land as an investment two years ago. What are the tax implications to Beauty, Megan, and Melanie of the land distribution in each of the situations that follow? Use this data for Question 7 and 8.

Question 7

Beauty was formed as a C corporation but made an S election three years after its formation. On January 1 of the current year, Megan's basis in his stock is $ 200,000, and Melanie's stock basis is $ 160,000. Beauty had the following earnings balances on January 1 of the current year: Accumulated Adjustments Account $ 250,000 Accumulated E& P 60,000

Question 8

Beauty was formed as a partnership and continues to operate in that form. On January 1 of the current year, Megan's basis in her partnership interest is $ 200,000, and Melanie's partnership basis is $ 160,000. The partnership has no liabilities and no unrecognized precontribution gains.