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Quantum Leap, an S corporation, has $10,000 in accumulated earnings and profits. In Year 1,...

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Accounting

Quantum Leap, an S corporation, has $10,000 in accumulated earnings and profits. In Year 1, Quantum Leap distributed property with a fair market value of $75,000 and an adjusted basis of $62,000 to Edward, its sole shareholder. After recognizing his share of any corporate gain or loss, his adjusted basis in Quantum Leaps stock at the end of the year was $60,000. How should Edward handle the distribution?

  • A.$70,000 is a nontaxable distribution.

  • B.$10,000 as ordinary income, $60,000 as return of capital, and $5,000 as taxable capital gain.

  • C.$60,000 as return of capital and $2,000 as taxable capital gain.

  • D.$60,000 as return of capital and $15,000 is nontaxable distributions.

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