Address the following scenarios:The stock in ACME Corporation is held equally by two sisters. One year before its liquidation, the shareholders transfer property (basis of $500,000, fair market value...

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Address the following scenarios:



  1. The stock in ACME Corporation is held equally by two sisters. One year before its liquidation, the shareholders transfer property (basis of $500,000, fair market value of $300,000) to ACME Corporation in return for stock. In current year liquidation, ACME Corporation transfers the property (now worth $250,000) pro rata to the sisters. What amount of loss will ACME Corporation recognize on the distribution?

  2. Osborne, the parent corporation, has a basis of $540,000 in the stock of Widget Corporation, a subsidiary in which it owns 90% of all classes of stock. Osborne purchased the stock in Widget Corporation 10 years ago. In the current year, Osborne Corporation liquidates Widget Corporation and acquires assets worth $300,000 with a tax basis to Widget Corporation of $280,000. What basis will Osborne Corporationhave in the assets acquired from Widget Corporation?

  3. Pursuant to a complete liquidation, Widget Corporation distributes to its shareholders land with a basis of $350,000 and a fair market value of $450,000. The land is subject to a liability of $500,000. What is Widget’s recognized gain or loss on the distribution?

  4. The stock in Brighton Corporation is held by two unrelated individuals, Martha (60%) and Charles (40%). One year before the liquidation of Brighton, the shareholders transfer properties to the corporation in a transaction that qualifies under § 351. Included in that transfer was land (basis of $400,000, fair market value of $450,000). Pursuant to its liquidation in the current year, Brighton Corporation distributes the land (now worth $300,000) pro rata to the shareholders. What amount of loss will Brighton recognize on the distribution?



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Answered Same DayOct 16, 2022

Answer To: Address the following scenarios:The stock in ACME Corporation is held equally by two sisters. One...

Sandeep answered on Oct 17 2022
48 Votes
Corporation Tax
Ans 1
In this case since extra property is received over and above Stock transfer. But no loss will be recognized by the recipient. Usually neither t
ransferor nor the Corporation will recognize any loss/ gain on such transfer under sec 351.
A sec 351 transaction amounts to transfer upon the fulfillment of the following conditions:
· 1 or more shareholder transfers property to the Corporations:
· Solely in exchange of Corp. stock;
· Immediately post the exchange, transferor or the transferors as a group, wrest the control of such corporation.
· Finally for transfer to qualify under Sec 351, such transaction be backed by valid business objective or purpose.
A transferor could recognize gain of it was in receipt of additional property from the corporation in excess of transferred stock since the transferor’s basis in such property (i.e., booty) is basis in the stock obtained, duly adjusted for such cost of such boot value and balance as gain recognized.
However, loss to the Corporation can be computed as (Fair market value – Basis value)
= $ 3,00,000 - $5,00,000) = ($ 2,00,000).
Ans 2. is $280,000
As per the sec 332 of IRS , if and when the Parent company receives property under certain illustrated circumstances by 1 corporation as a distribution in the complete liquidation of assets/stock of another corporation entity and it provided for the non-recognition of gain/loss in such cases .However the non-recognition of gain or loss is purely restricted to the receipt of such property by Osborne ( which is the actual owner of such assets ) in such liquidating corporation thereby possessing at least >= 80% of all classes of the stock...
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