Question

please answer the following question, part a, b and c

PROBLEMS 5.17 Liquidations-General Rules (8$ 331 and 336). G an individual owns all the stock of T Corporation. G purchased the stock 15 vears ago for $450,000. G decided to completely liquidate T Corporation. The balance sheet of T Corporation immedi- ately prior to the liquidation is as follows: Fair Market Value Basis $ $ 30,000 100,000 30,000 90,000 Cash ........... Marketable securities.................. Equipment Less: Accumulated depreciation ........ Land .......... Total assets .................... $400,000 (170,000) 230,000 760,000 $1,120,000 280,000 810,000 $1,210,000 Retained earnings ............ $ 670,000 $ 0 Common stock ........ ..... ... 450,000 1,210,000 Total equity .... $1,120,000 $1,210,000 Assume that G is in the 33% tax bracket and that T corporation is in the 21% tax bracket before the liquidation. Also assume that earnings and profits prior to liqui- dation were equivalent to retained earnings. a. How much gain or loss, if any, will T corporation recognize as a result of the liquidation? b. What is G's recognized gain or loss? c. What is G's basis in the assets received?

Answer 1

1)

Liquidating Corp	Equipment	Securities	Land	Total
Amount realized	280,000	90,000	810,000
Adjusted basis	-230,000	-100,000	-760,000
Realized	50,000	-10,000	50,000	90,000

2)

G’s Amount realized
FMV of assets received	1,210,000
G’s Adjusted basis of stock surrendered	-450,000
Realized	760,000

Liquidating Corp	Equipment	Securities	Land	Total
Amount realized	280,000	90,000	810,000
Adjusted basis	-230,000	-100,000	-760,000
Realized	50,000	-10,000	50,000	90,000
Corporate tax rate				0.21
Corporate level tax				18,900

	Tax	Cash-flow
Amount realized	1,210,000	1,210,000
Corporate level tax	-18,900	-18,900
After tax proceeds	1,191,100	1,191,100
Adjusted basis of stock	450,000
Realized	741,100
Shareholder tax	0
Shareholder tax	148,220	148,220
After tax proceeds		1,042,880

3)

Assets Received	Adjusted Basis to Shareholder
Cash	11,100
Marketable Securities	90,000
Equipment	280,000
Land	810,000
Total	1,210,000