Questions: Volunteer Corporation reported taxable income of 510,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Rocky. The land's fair market value was 84,500 and its tax and EP basis to Volunteer was 56,500. Rocky assumed a mortgage attached to the land of 16,900. The company had accumulated EP of 866,000 at the beginning of the year.

Volunteer Corporation reported taxable income of 510,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Rocky. The land's fair market value was 84,500 and its tax and EP basis to Volunteer was 56,500. Rocky assumed a mortgage attached to the land of 16,900. The company had accumulated EP of 866,000 at the beginning of the year.

Transcript text: Volunteer Corporation reported taxable income of $510,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Rocky. The land's fair market value was $84,500 and its tax and E&P basis to Volunteer was $56,500. Rocky assumed a mortgage attached to the land of $16,900. The company had accumulated E&P of $866,000 at the beginning of the year.

Solution

Solution Steps

To determine the amount of dividend income Rocky reports, we need to calculate the fair market value of the land distributed minus the mortgage assumed by Rocky. This will give us the net value of the distribution. Since the distribution is from the company's earnings and profits (E&P), the net value of the distribution is considered dividend income.

Step 1: Determine the Fair Market Value of the Distribution

The fair market value of the land distributed to Rocky is given as $ \$84,500 $.

Step 2: Calculate the Mortgage Assumed by Rocky

Rocky assumed a mortgage attached to the land, which is $ \$16,900 $.

Step 3: Calculate the Net Value of the Distribution

The net value of the distribution is calculated by subtracting the mortgage assumed from the fair market value of the land: \[ \text{Net Value} = 84,500 - 16,900 = 67,600 \]

Step 4: Determine the Dividend Income

Since the distribution is from the company's earnings and profits, the net value of the distribution is considered dividend income for Rocky.