4) Larry is a 100% owner of LKJ Corporation. LKJ has been an S corporation since its inception in 2018 During 2019, LKJ distributed $24,000 to Larry. During 2019, LKJ reported $8,000 of business income and no separately stated items. What is the amount and character of the gain on the distribution, if any, Larry must recognize in each of the following alternative scenarios? Also, what is Larry's stock basis at the end of 2019 in each of the following scenarios? a. Larry's stock basis at the beginning of 2019 was $40,000. Larry does not recognize any gain on the distribution and his stock basis at the end of the year is $24,000. ($40,000 initial stock basis + $8,000 business income - $24,000 distribution) b. Larry's stock basis at the beginning of 2019 was $6,000.
4) Larry is a 100% owner of LKJ Corporation. LKJ has been an S corporation since its inception in 2018 During 2019, LKJ distributed $24,000 to Larry. During 2019, LKJ reported $8,000 of business income and no separately stated items. What is the amount and character of the gain on the distribution, if any, Larry must recognize in each of the following alternative scenarios? Also, what is Larry's stock basis at the end of 2019 in each of the following scenarios? a. Larry's stock basis at the beginning of 2019 was $40,000. Larry does not recognize any gain on the distribution and his stock basis at the end of the year is $24,000. ($40,000 initial stock basis + $8,000 business income - $24,000 distribution) b. Larry's stock basis at the beginning of 2019 was $6,000.
Chapter16: Property Transactions: Capital Gains And Losses
Section: Chapter Questions
Problem 1RP
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Transcribed Image Text:4) Larry is a 100% owner of LKJ Corporation. LKJ has been an S corporation since its inception in 2018
During 2019, LKJ distributed $24,000 to Larry. During 2019, LKJ reported $8,000 of business income and
no separately stated items. What is the amount and character of the gain on the distribution, if any, Larry
must recognize in each of the following alternative scenarios? Also, what is Larry's stock basis at the end
of 2019 in each of the following scenarios?
a. Larry's stock basis at the beginning of 2019 was $40,000.
Larry does not recognize any gain on the distribution and his stock basis at the end of the year is
$24,000. ($40,000 initial stock basis + $8,000 business income - $24,000 distribution)
b. Larry's stock basis at the beginning of 2019 was $6,000.
Larry recognizes $10,000 of long-term capital gain ($6,000 basis at the beginning of the year + $8,000 - $24,000
distribution). The distribution in excess of basis is a long-term capital gain because Larry's stock in LKJ is a capital
asset and Larry held the stock for more than a year. Larry's stock basis at the end of the year is $0.
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