Are Form 1120 Schedule M 3 Liabilities 2019-2024

Hello and welcome to the session where we will be discussing the distribution of property. We will work through a couple of examples to illustrate the concept. For an S corporation, if there is an appreciated property that has gained value, the gain must be recognized. We treat this by assuming that the property is sold for its fair market value. This means that we will have a gain or loss. The gain is then allocated to the shareholders and increases their stock basis. The stock basis is the basis of the stockholder before the distribution. The basis of the asset distributed is equal to the fair market value, which is essentially the adjusted basis plus the recognized gain. If there is a loss, it is not recognized and the basis of the property distributed is simply the fair market value. In the case of an S corporation, any loss is not recognized and the basis of the property distributed is decreased without any loss recognition by the corporation. Now let's look at an example. Turnip, an S corporation for ten years, distributed a tract of land as an investment to the majority shareholder. The land was purchased for $22,000 and is currently worth $82,000. Turnip recognizes a capital gain of $60,000, which increases the Triple A account. The gain appears on Turnip's Schedule K and a proportionate share of it passes through to the shareholders' tax return. The property distributed reduces the Triple A account. The tax consequences for appreciated property are the same whether the shareholder disposes of it or the corporation sells the property and distributes the proceeds to the shareholder. Another option would be for the corporation to sell the property and distribute the proceeds. The tax consequences remain the same since everything eventually goes back...