Exam 6: Corporate Liquidating Distributions

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

Parent Corporation owns 100% of the single class of stock of Subsidiary Corporation. Parent's basis in the Subsidiary stock is $500,000 when Parent completely liquidates Subsidiary Corporation within a single tax year. The Subsidiary Corporation assets have a $700,000 adjusted basis and an $800,000 FMV at liquidation. As a result of the liquidation, Parent must recognize a

A Sec. 332 liquidation requires a complete statement be filed with the distributee's tax return

Barnett Corporation owns an office building that cost $900,000. Barnett has taken $600,000 of depreciation on the building. The property is subject to a $600,000 mortgage. The office building has a current FMV of $400,000. Barnett Corporation is liquidated and the office building is distributed to a single individual shareholder who assumes the mortgage. Barnett Corporation must recognize

Lake Corporation distributes a building used in its business to Sandy in exchange for all of her Lake stock. Sandy's basis in her stock is $30,000 and the property she receives has a $90,000 FMV. As part of the distribution, Sandy assumes a liability associated with the property of $65,000. The property's basis prior to the liquidating distribution was $25,000. What are the tax consequences of the distribution to Sandy? To Lake Corporation?

Chip and Dale are each 50% owners of Tree Corporation, a holding company. They have each held their stock since the company was formed five years ago. Tree's money is invested almost entirely in stocks, bonds, rental real estate, and land. All of the stocks are traded on the New York Stock Exchange except for 1,000 shares of Conifer Corporation stock. Conifer is privately held by 50 individuals. Last year, Conifer reported about $2 million in net income. During a meeting with Chip and Dale, you discover that they plan to liquidate Tree Corporation as soon as possible to avoid the personal holding company tax. What tax issues should Chip and Dale consider with respect to this liquidation?

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

Identify which of the following statements is true.

Charlene and Dennis each own 50% of Brewster Corporation and have owned it for five years. The adjusted bases of their Brewster stock are $80,000 and $40,000 respectively. Brewster Corporation liquidates and distributes $60,000 to Charlene in exchange for her stock. It distributes a parcel of land with a $140,000 FMV which is subject to a $90,000 mortgage to Dennis in exchange for his stock. Dennis assumes the mortgage and also receives $10,000 in cash. a)What is the character and amount of each shareholder's gain or loss? b)What is each shareholder's basis in the property received in the liquidation?

Parent Corporation owns 100% of the stock of Subsidiary Corporation. The adjusted basis of its stock investment is $100,000. A plan of liquidation is adopted. Subsidiary distributes to Parent assets with a $325,000 FMV and a $275,000 adjusted basis. Subsidiary also distributes liabilities in the amount of $40,000. Subsidiary has a $150,000 E&P balance. a)What is the amount and character of Subsidiary Corporation's recognized gain or loss on the distribution? b)What is the amount and character of Parent Corporation's recognized gain or loss on the redemption of the Subsidiary stock? c)What basis does Parent take in the assets? d)What happens to parent Corporation's basis in the Subsidiary stock and to Subsidiary's tax attributes?

Identify which of the following statements is true.

Identify which of the following statements is true.

Generally, a corporation recognizes a gain, but not a loss, on a liquidating distribution.

Bluebird Corporation owns and operates busses and has decided to liquidate its operations. Victor, who owns 80% of the company's stock, will receive all of the busses, repair parts inventory, and all tools and equipment. He plans to start a bus company in another town. Penny, who owns 20% of the stock, wants nothing to do with the new bus business and will receive a cash distribution. Bluebird will incur about $20,000 of expenses in connection with the liquidation. What tax issues should Victor, Penny, and Bluebird consider with respect to the liquidation?

In a Sec. 332 liquidation, what bases do both the parent and minority shareholders take in the assets received?

What attributes of a controlled subsidiary corporation are carried over to the parent when the subsidiary is liquidated?

Identify which of the following statements is false.

Dusty Corporation owns 90% of Palace Corporation's stock and Susan owns the remaining stock. Dusty Corporation's stock basis is $300,000 and Susan's stock basis is $20,000. Under a plan of complete liquidation, Dusty Corporation receives property with a $400,000 adjusted basis and a $540,000 FMV and Susan receives property with a $20,000 adjusted basis and a $60,000 FMV. The bases of the properties are:

When a subsidiary corporation is liquidated into its parent corporation under a formal plan of liquidation, the distributions must take place within

The stock of Cooper Corporation is 70% owned by Carole and 30% owned by Carole's brother, Chris. During 2017, Chris transferred property (basis of $100,000 and FMV of $120,000)as a contribution to the capital of Cooper. During February 2018, Cooper adopted a plan of liquidation and subsequently made a pro rata distribution of the property back to Carole and Chris. At the time of the liquidation, the property had an FMV of $80,000. What amount of loss can be recognized by Cooper on the distribution of property?