A tract of land was distributed by MNO Inc. to its sole shareholder, Martha, as a dividend. At the time of the distribution, MNO Inc.'s adjusted basis in the land was $40,000, the fair market value of the land was $80,000, and the land was encumbered by a $55,000 mortgage. Which of the following statements is accurate?
a. MNO Inc.'s earnings and profits must be increased by $15,000 (liability less basis), decreased by $40,000 (adjusted basis), and increased by $55,000 (the amount of the liability).
b. The net adjustment to MNO Inc's earnings and profits is $40,000, the amount of the realized gain.
c. The distributing corporation's realized gain of $40,000 is recognized to the extent of the $15,000.
d. The shareholder's basis in the land is $80,000, its fair market value.