Eagle Corporation has always been an S corporation. Eagle is 100% owned by Katy. Katy's adjusted basis in the Eagle stock is $100,000 on January 1 of the current year. During the current year, Eagle distributes XYZ stock (a capital asset) to Katy. The XYZ stock has a $50,000 FMV and a $40,000 adjusted basis on Eagle's books. The XYZ stock has been held as an investment for four years by Eagle.
Eagle Corporation reports $40,000 of ordinary income in the current year. What is Katy's basis in the Eagle stock at the beginning of the next year?
What will be an ideal response?
1/1 Basis $100,000
Plus: gain on distribution 10,000
ordinary income 40,000
Predistribution basis $150,000
Minus: distribution ( 50,000)
12/31 Basis $100,000
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What will be an ideal response?
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Answer the following statement true (T) or false (F)