LESSON 5
DIVIDENDS and OTHER NONLIQUIDATING DISTRIBUTIONS
5B Distributions in Kind and Constructive Distributions
(6) Because of the substantial disparity between payment and value, this is a distribution with respect to stock. X recognizes $100 gain under § 311(b), which produces an interim E&P of $160. E&P is reduced by $100 for the distribution because the $100 payment is like taking subject to a $100 debt under § 312(c), leaving $60 accumulated E&P. The amount of distribution each shareholder receives is the bargain element–$50. Regs. § 1.301-1(j); B&E ¶ 8.05[4]. Consider discussing Alves for a related § 83 issue.
Alternative: When A and Y pay more than FMV, perhaps hoping to create depreciation deductions (assume X has NOLs that will offset gain from the sale), there is no distribution by X. The shareholders, however, should take a $200 basis in the property and increase their aggregate stock basis by $100 for a contribution to capital under Regs. § 1.118-1. But cf. Nestle Holdings, B&E ¶ 13.23[3][e].