Lesson 5B-In Class Exercises 

1.	In the current year, Sedgwick Corporation has $100,000 of current and accumulated E&P.  On March 3, Sedgwick distributes to Dina, a shareholder, a parcel of land (a capital asset) having a fmv of $56,000.  The land has an adjusted basis of $40,000 (for both tax and e&p purposes), and is subject to an $8,000 mortgage, which Dina assumes.  Assume a 34% marginal tax rate.

a.	What are the amount and character of income Dina recognizes as a result of the distribution?

b.	What is Dina’s basis for the land?

c.	What is the amount and character of Sedgwick’s gain or loss as a result of the distribution?

d.  What effect does the distribution have on Sedgwick’s E&P?