Corporation_liquidation_examples

Corporation_liquidation_examples - (c) What is the tax...

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Topic: Liquidating distributions – Related party and built-in loss rules 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? (b) What is the tax effect on Liquid, Major and Minor…if Liquid distributes the investments and land to Major and the equipment to Minor?
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Unformatted text preview: (c) What is the tax effect on Liquid, Major and Minorif Liquid distributes 80% of each asset to Major and 20% of each asset to Minor? (d) Same as (b) EXCEPT Major is a corporation (i.e., the parent corporation) and not an individual taxpayer. Part 2: Liquidating distributions & the built-in loss rules A shareholder transfers land (and other assets) to Liquid2 Corporation (basis = $10,000; fair value = $8,000), in a transfer that qualifies for Sec. 351 treatment. 1 years later, as part of plan of liquidation, Liquid2 corporation sells the land for its fair value of $4,500. Assuming Liquid2 held the land for investment, how much loss (if any) may Liquid2 recognize on the sale?...
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