Exam 6: Corporate Liquidating Distributions

Parent Corporation,which operates an electric utility,created a 100%-owned corporation,Subsidiary that built and managed an office building.Assume the two corporations have filed separate tax returns for a number of years.The utility occupied two floors of the office building,and Subsidiary offered the other ten floors for lease.Only 25% of the total rental space was leased because of the high crime rate in the area surrounding the building.Rental income was insufficient to cover the mortgage payments,and Subsidiary filed for bankruptcy because of the poor prospects.Subsidiary's assets were taken over by the mortgage lender.Parent lost its entire $500,000 investment.At the time Subsidiary was liquidated,another $100,000 of debts remained unpaid for the general creditors,which included a $35,000 account payable to Parent.What tax issues should Parent and Subsidiary consider with respect to the bankruptcy and liquidation of Subsidiary?

How is the gain/loss calculated if a shareholder has acquired stock at different times and at varying prices?

Identify which of the following statements is true.

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

What are the differences,if any,in the tax rules applying to distributions made to a parent corporation and a minority shareholder when a controlled corporation liquidates?

Identify which of the following statements is true.

Identify which of the following statements is true.

Lake City Corporation owns all the stock in Columbia Corporation.Pursuant to a plan of complete liquidation,Columbia distributes land having a $500,000 FMV and a $200,000 basis to Lake City.Columbia's gain with respect to the distribution will be

Property received in a corporate liquidation by a noncorporate shareholder has

A subsidiary recognizes no gain or loss on a distribution to a parent corporation owning the majority of the subsidiary's stock in a complete liquidation.

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 2012.Midwest subsequently lost a lawsuit and Penny paid an additional $3,000 in 2014 as her part of the settlement.What are the tax consequences to Penny in 2014 of the $3,000 additional payment she made?

Barbara owns 100 shares of Bond Corporation stock with a basis of $40,000.Barbara receives two liquidating distributions,including $16,000 paid last year and $20,000 paid in the current year.An additional distribution of an undetermined amount is expected next year.On last year's tax return,Barbara can recognize a loss of

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

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?

Texas Corporation is undergoing a complete liquidation and distributes land to Robert,one of its shareholders,in exchange for all of Robert's stock.The land has a basis of $300,000 and an FMV of $400,000 on Texas Corporation's books and is subject to a $325,000 liability.Robert assumes the liability on the property.Robert's basis in his Texas Corporation stock is $100,000.What is the amount of gain or loss recognized by Robert on the distribution?

Identify which of the following statements is false.

Ball Corporation owns 80% of Net Corporation's stock and Jack owns the remaining 20% of Net Corporation's stock.Ball's basis in the Net stock is $200,000 and Jack's basis in the Net stock is $100,000.Under a plan of complete liquidation,Ball Corporation receives property with an adjusted basis of $400,000 and an FMV of $800,000 and Jack receives property with an adjusted basis of $50,000 and an FMV of $200,000.Ball and Jack's recognized gains on the liquidation are:

In a complete liquidation of a corporation,which of the following is false?

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

Riverwalk Corporation is liquidated,with Juan receiving $5,000 in money,other property having a $6,000 FMV,and a $1,000 mortgage on the property.Juan's basis in his River walk stock is $8,000.Upon liquidation,Juan must recognize a gain of