On May 10 of the current year, Franklin Corporation distributes to its shareholder Carol $10,000 in cash and land (a capital asset) having a $60,000 FMV. The land has a $30,000 adjusted basis (for both taxable income and E&P purposes) and is subject to a $95,000 mortgage, which Carol assumes. Franklin has an E&P balance exceeding the amount distributed and is subject to a 34% marginal corporate tax rate.

Requirements

a. What are the amount and character of the income Carol recognizes as a result of the distribution b. What is Carol's basis in the land

c. What are the amount and character of Franklin's gain or loss as a result of the distribution.