Question

Tiffany and Carlos decided to liquidate their jointly owned corporation, Royal Oak Furniture (ROF). After liquidating its remaining inventory and paying off its remaining liabilities, ROF had the following tax accounting balance sheet: FMV Adjusted Basis Appreciation (Depreciation) Cash $ 365,250 $ 365,250 Building 70,250 27,500 42,750 Land 295,000 372,500 (77,500 ) Total $ 730,500 $ 765,250 $ (34,750 ) Under the terms of the agreement, Tiffany will receive the $365,250 cash in exchange for her 50 percent interest in ROF. Tiffany's tax basis in her ROF stock is $64,250. Carlos will receive the building and land in exchange for his 50 percent interest in ROF. His tax basis in the ROF stock is $121,500. Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation. (Negative amounts should be indicated by a minus sign.) a. What amount of gain or loss does ROF recognize in the complete liquidation?

Answer 1

1) What amount of gain or loss does ROF recognize the complete liquidation?

ANSWER: Recognize gain of Rs 42750 on the transfer of the building and recognize a Rs 77,500 loss on the transfer of the land.Although this distribution is non-prorata,Carlos is not a related person because she does not won more than 50% of ROF stock.