Puffin Corporation makes a property distribution to its sole shareholder, Bonnie. The property distributed is a car (basis of $30,000; fair market value of $20,000) that is subject to a $6,000 liability which Bonnie assumes. Puffin has no accumulated E & P and $30,000 of current E & P from other sources during the year. What is Puffin's E & P after taking into account the distribution of the car?
a. $4,000
b. $6,000
c. $10,000
d. $14,000
e. None of the above
b
RATIONALE: E & P is reduced by the greater of the adjusted basis or the fair market value of the property distributed, net of any liabilities. Losses on distribution are not taken into account when determining E & P. As a result, Puffin's current E & P of $30,000 is reduced by $24,000 ($30,000 basis of the car less the amount of the liability). The remaining current E & P after the distribution is $6,000.
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