Please read carefully this tax accounting problem and answer
questions below: Petrel Corporation has accumulated E & P of
$ at the beginning of the year. Its currentyear taxable
income is $ On December Petrel distributed business
property worth $ adjusted basis of $ to Juan, its
sole shareholder. Juan assumes a $ liability on the property.
Included in the determination of Petrels current taxable income is
$ of income recognized from an installment sale in a previous
year. In addition, the corporation incurred a Federal income tax
liability of $ paid life insurance premiums of $ and
received term life insurance proceeds of $ on the death of
an officer.
A What is Juans gross income from the distribution?
B What is the E & P of Petrel Corporation after the property
distribution?
C What is Juans tax basis in the property received?
D How would your answers to a & b change if Petrel had
sold the property at its fair market value, used $ of the
proceeds to pay off the liability, and distributed the remaining
cash and any tax savings to Juan?
