Sam owns 20% of CCC Corporation (CCC). CCC sells diamonds to retail jewelry businesses. While CCC has a deficit in accumulated E & P of $256,000 at the beginning of the year, its current E & P is $400,000. Since the company had a successful year, CCC pays a $50,000 distribution to each of the companys five shareholders on December 31. Four of the shareholders receive cash, but CCC distributes a diamond (adjusted basis of $70,000 and a fair market value of $50,000) to Sam instead of cash.

What is the effect of distributing the diamond on CCCs taxable income?

What would the effect be on Sams taxable income? What is Sams basis in the diamond? __________

Was the distribution good tax planning on the part of CCC? ______ Why or why not?