Question

Hilda Corp is a C-Corp, owned by a single shareholder, Hilda. Hilda Corp owns a parcel of land that it has owned for some years, and Hilda would like to own the land directly. Hilda would like to understand the amount of tax that she and Hilda Corp will have to pay if the land is distributed to her.

Here are some additional facts:

The fair market value of the land is $5,000,000;

Hilda Corp has a tax basis in the land of $1,000,000;

Hilda Corp has current and accumulated earnings and profits before this transaction of $1,000,000;

The corporate tax rate is 21%;

The individual tax rate on ordinary income is 37%; and

The tax rate on dividend income and capital gains is 20%

Hilda's basis in her Hilda Corp stock is $300,000.

1. How will Hilda Corp report this transaction on its tax return?
2. How much tax will Hilda Corp pay, if any?
3. How will Hilda report this transaction on her tax return (i.e. dividend, sale or exchange, not taxable or some combination)?
4. How much tax will Hilda pay, if any?
5. What is Hilda’s tax basis in the land?

Answer 1

1)Hilda Corp will have to bear capital gain on sale of this land .Amount of capital gain would be:
Sale Consideration:	5000000
less: Basic Value	1000000
Capital Gain	4000000
Tax @ 20% on Capital Gain	800000
Tax on other profit ie 1000000@21%	210000
2) Total Tax Burden o Hinda Corp
Profit before this transaction 1000000*21%	210000
Capital Gain ie 4000000*20%	800000
Total Tax Burden	1010000