Question: Vogel, Inc., an S corporation for five years, distributes a tract of land held as an investment to Jamari, its majority shareholder. The land was

Vogel, Inc., an S corporation for five years, distributes a tract of land held as an investment to Jamari, its majority shareholder. The land was purchased for $45,000 ten years ago and is currently worth $120,000.

a. As a result of the distribution, what is Vogel’s recognized capital gain? How much is reported as a distribution to shareholders?

b. What is the net effect of the distribution on Vogel’s AAA?

c. Assume instead that the land had been purchased for $120,000 and was currently worth $45,000. How much would Vogel recognize as a loss? What would be the net effect on Vogel’s AAA? What would be Jamari’s basis in the land?

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