(TCO 6) ParentCo acquired all of the stock of SubCo on January 1, 20X1, for $3,000,000. The parties
immediately elected to file consolidated tax returns. SubCo generated taxable income of $50,000 for
20X1 and paid a dividend of $75,000 to ParentCo. In 20X2, SubCo generated an operating loss of
$350,000, and in 20X3 produced taxable income of $65,000. As of the last day of 20X3, what was
ParentCo’s basis in the stock of SubCo?
ParentCo’s initial stock basis was $3,000,000. Positive adjustments to basis include the $50,000 income
for 20X1 and the $65,000 of income for 20X2. Negative adjustments to basis include the $75,000
dividend paid to ParentCo in 20X1 and the $350,000 loss in 20x2.
Purchase price for SubCo, initial basis
ParentCo’s Basis in SubCo stock, 12/31/X3