Grackle Corporation (E & P of $600,000) distributes cash of $200,000 and land (fair market value of $400,000; basis of $250,000) to a shareholder in a qualifying stock redemption. The land distributed is subject to a mortgage of $460,000 . Grackle will recognize a gain of $210,000 as a result of the distribution
a. True
b. False
Indicate whether the statement is true or false
True
RATIONALE: Grackle will recognize a gain on the distribution of the land equal to excess of the mortgage over the basis in the land, or $210,000 ($460,000 – $250,000). In a nonliquidating distribution of property, gain is recognized as if the property were sold for its fair market value. When property is distributed subject to a liability, the fair market value in the deemed sale cannot be less than such liability.
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