Exam 6: Corporate Liquidating Distributions

Parent Corporation owns 80% of the stock of an insolvent subsidiary corporation.Vic owns the remaining 20% of the stock.The courts determine the subsidiary to be bankrupt,and the shareholders receive nothing for their investment.How do they report their losses?

Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person.

Toby made a capital contribution of a pretzel maker having a $2,000 adjusted basis and a $200 FMV to Keke Corporation in exchange for additional stock last year.Later that same year,Keke sold the pretzel maker for $300.This year,Keke adopted a plan of liquidation.Previously,Keke had never used the pretzel maker in connection with the conduct of its trade or business.The sale was reported on Keke's current tax return.What reporting option does Keke Corporation not have because of its plan of liquidation?