NonCash Distributions

[Corduroy Frog]

I have one client who didn't listen when I told him not to put land and buildings into his S corporation.

If he pulls and land/building "out" of the corporation, this is a taxable "dividend?" to the extent of excess FMV over corporate basis. Does this mean the corporation should send him a 1099-DIV for this difference even if it is an "S" corp?

Does the FMV doctrine apply to personal property (e.g. equipment) as well??

[DaveO]

It's treated as if the building was sold to a third party

at FMV by the corporation. The corporation would record the gain and distribute to the shareholder as capital gain and un-recaptured section 1250 gain on the K-1. You would also show a non-cash distribution in the amount of the FMV of the property on the K-1.

[Corduroy Frog]

Thanks

Dave-O thanks. So if a recipient receives a building FMV of $50,000, and the basis is $20,000, then the corporation must report a capital gain. If the recipient is a 50% shareholder, his K-1 will show a $15,000 as his share of capital gain. Additionally, the entire $50,000 is regarded as a distribution for that shareholder. Am I on the right track?

p.s. if there is another shareholder with 50% then that shareholder has $15,000 on his K-1 too. Urge to kill.

Also, what if the property is not real estate, but personal property. Like a vehicle.

Thanks

The Frog