Corporation_liquidation_solutions

Corporation_liquidation_solutions - TAX 5015: Liquidating...

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TAX 5015: Liquidating distributions, Related party and built-in loss rules – SOLUTION updated: August 18, 2010 Part 1: Liquidating distributions and the related party rules. Liquid Corporation has three assets, and two individual shareholders – Major and Minor: Asset Fair value Basis Investments $60,000 $35,000 Land 20,000 15,000 Equipment 20,000 25,000 Major shareholder (an individual taxpayer) owns 80% of stock with basis of $60,000 Minor shareholder (an individual taxpayer) owns 20% of stock with basis of $16,000 Required: a) What is the tax effect on Liquid, Major, and Minor…if Liquid distributes the investments and equipment to Major and the land to Minor? Liquid Corporation : Recognizes $25,000 LTCG on the investments, and a $5,000 LTCG (probably) on the land. Cannot recognize the $5,000 realized loss on the equipment because it is distributed to a related party. Major shareholder : Recognizes a $20,000 LTCG on stock in complete liquidation (assuming held for more than one year). Basis in investments received from Liquid = $60,000. Basis in equipment received from Liquid = $20,000. Holding period of assets begins the day after distribution. Minor shareholder : Recognizes a $4,000 LTCG on the stock in complete liquidation (assuming held for more than one year). Basis in land received from Liquid = $20,000.
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Corporation_liquidation_solutions - TAX 5015: Liquidating...

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