Question

25. HolyCow Corporation is liquidated, with Sneha receiving $4,000 in money and other property having a $7,000 FMV. Sneha's basis in his HolyCow stock is $6,000. Upon liquidation, Sneha must recognize a gain of

A) 0.

B) $5,000.

C) $8,000.

D) $11,000.

26. Identify which of the following statements is true.

A) A liquidating distribution of property other than a disqualified property that is made ratably to all shareholders (based on their stockholdings) will permit the recognition of loss on the portion of the distribution that is made to a related person.

B) A subsidiary corporation can recognize losses on distributions to either the parent corporation or minority shareholders in a Sec. 332 liquidation.

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

D) All of the above are false.

27. Parent Corporation owns 100% of the single class of stock of Subsidiary Corporation. Parent's basis in the Subsidiary stock is $500,000 when Parent completely liquidates Subsidiary Corporation within a single tax year. The Subsidiary Corporation assets have a $700,000 adjusted basis and an $800,000 FMV at liquidation. As a result of the liquidation, Parent must recognize a

A) $300,000 gain.

B) $0 gain.

C) $200,000 gain.

D) none of the above

Answer 1

25. Gain to be recognized = Consideration received - Basis in stock = (4,000+7,000) - 6,000 = 11,000 - 6,000 = 5,000 Option B