Exam 6: Corporate Liquidating Distributions

Penny, a cash- basis taxpayer, reported a $15,000 long- term capital gain on the exchange of her Midwest Corporation stock when the corporation liquidated in 2016. Midwest subsequently lost a lawsuit and Penny paid an additional $3,000 in 2018 as her part of the settlement. What are the tax consequences to Penny in 2018 of the $3,000 additional payment she made?

Under a plan of complete liquidation, Key Corporation distributes land (not a disqualified property) with an adjusted basis of $410,000 and an FMV of $300,000 for all Sharon's stock. Sharon's basis in her 5% interest in the Key stock is $250,000. Find Sharon's basis in the land and Key Corporation's recognized gain or loss.

New York Corporation adopts a plan of liquidation on March 15 and shortly thereafter sells a parcel of land on which it realizes a $15,000 gain (excluding the effects of a $2,000 sales commission). New York pays its legal counsel $500 to draft the plan of liquidation. All of New York's remaining properties are distributed to its shareholders on September 15. What are the tax consequences to New York on the land sale?

Parent Corporation owns 70% of Sam Corporation's single class of stock. This year, Parent Corporation purchases for cash the remaining 30% of Sam Corporation's stock from four individual investors pursuant to a tender offer. A plan of liquidation is approved by Sam Corporation's shareholders during the last month of this year, and Sam Corporation's assets are distributed by year- end to Parent Corporation in exchange for all of Sam's outstanding stock. Parent Corporation should

A plan of liquidation must be reduced to writing in order to be accepted by the Internal Revenue Service.

Jack Corporation is owned 75% by Sherri and 25% by Mark. Sherri and Mark have $125,000 and $50,000 bases in their stock, respectively. Jack Corporation adopts a plan of liquidation on March 1. On April 12, Sherri receives the following property as a liquidating distribution: cash of $30,000; land, $125,000 FMV; and 150 shares of Green Corporation stock, $30,000 FMV. The land is subject to a $20,000 mortgage. On the same date, Mark receiv $10,000 FMV of Green stock (50 shares) and cash of $45,000 as a liquidating distribution. The land has a basis of $ and the stock has a basis of $70,000 in Jack Corporation's hands. Both are capital assets to Jack Corporation and h been held for a number of years. a) What is the amount and character of Jack Corporation's recognized gain or loss on the liquidating distributio b) What are the amounts and characters of Sherri and Mark's recognized gains or losses? c) What are the bases of the land and stock to Sherri and Mark?

Hope Corporation was liquidated four years ago. Teresa reported a $40,000 long- term capital gain due to the liquidation on her individual tax return. This year, Teresa pays $6,000 as part of the settlement of a lawsuit against Hope. Due to the $6,000 payment, Teresa recognizes a

What are the tax consequences of a cash- method shareholder, subsequent to a liquidation, if obligated to pay a contingent liability of the liquidated corporation?

A plan of liquidation

Greg, a cash method of accounting taxpayer, owns 100 shares of Parker Corporation stock with a basis of $20,000. Greg receives two liquidating distributions of $8,000 on March 3 of last year, and $8,000 on August 8 of this year. The amount of the second distribution is not known until June 15 of this year. Greg recognizes

Identify which of the following statements is true.

Under Illinois Corporation's plan of liquidation, the corporation distributes land to one of its shareholders, Springer. The land, which is used in Illinois trade or business, has a $20,000 adjusted basis and a $60,000 FMV on the distribution date. What are the tax consequences of this distribution to Illinois and Springer?

In a complete liquidation, a liability assumed by a shareholder reduces the shareholder's amount realized.

Identify which of the following statements is true.

Specialty Corporation distributes land to one of its shareholders, Sam, as part of a plan of liquidation. The land, which was used in Specialty's business, has an adjusted basis of $50,000 and an FMV of $130,000 on the date of distribution. Sam's basis in Specialty Corporation stock is $100,000. What is the amount and character of the gain/loss recognized by Specialty Corporation? What is the amount and character of the gain/loss recognized by Sam?

Under the general liquidation rules, Missouri Corporation is liquidated, with Jefferson receiving $5,000 in cash plus other property having a $6,000 FMV and assuming a $2,000 mortgage on the property. Jefferson's basis in his Missouri stock is $8,000. What is Jefferson's amount realized and gain or loss recognized on the liquidation?

Explain the difference in tax treatment between a partial liquidation and a complete liquidation.

Parent Corporation owns all of Subsidiary Corporation's stock. In addition, Parent Corporation owns $100,000 (face amount and basis) of Subsidiary Corporation's bonds. When Subsidiary Corporation is completely liquidated, it distributes property with a $70,000 adjusted basis and a $100,000 FMV to Parent Corporation in redemption of the Subsidiary Corporation bonds. Following the liquidation, Parent Corporation will have a basis in the Subsidiary Corporation property received for the bonds of

For the following set of facts, what are the tax consequences to Parent Corporation, Subsidiary Corporation, and a Subsidiary Corporation shareholder, Melisa? Parent Corporation owns 80% of Subsidiary Corporation's stock. Melisa owns the remaining 20% of the Subsidiary stock. Parent and Melisa's stock have adjusted bases of $100,000 and $25,000, respectively, for their Subsidiary stock. Subsidiary distributes land having a $125,000 adjusted basis and a $200,000 FMV to Parent and $50,000 in cash to Melisa.

Liquidating expenses are generally deducted as ordinary and necessary business expenses.