Question

18. Identify which of the following statements is true. A) With limited exceptions, a loss can be recognized by a liquidating corporation when it makes a liquidating distribution of property that has declined in value. B) When computing the corporate-level gain on a liquidating distribution, the FMV of the property cannot exceed the liability assumed or acquired by the shareholder. C) The FMV of property distributed by a liquidating corporation can be less than the amount of the liability assumed or acquired by the shareholder. D) All of the above are false. 19. Geranova Corporation is liquidated, with Vlad receiving $7,500 in money, other property having a $5,000 FMV, and a $2,000 mortgage on the property. Vlad's basis in his Geranova Co. stock is $7,000. Upon liquidation, Vlad must recognize a gain of A) 2,000. B) $3,500. C) $5,000. D) $12,500. 20. Illinois Corporation is undergoing a complete liquidation and distributes land to Maria, one of its shareholders, in exchange for all of Maria's stock. The land has a basis of S300,000 and an FMV of $400,000 on Illinois Corporation's books and is subject to a $325,000 liability. Maria assumes the liability on the property. Maria's basis in her Illinois Corporation stock is $100,000. What is the amount of gain or loss recognized by Maria on the distribution? A) No gain or loss is recognized B) $175,000 gain C) $25,000 gain D) $25,000 loss 21. Under a plan of complete liquidation, NEIU Corporation distributes land with a $250,000 adjusted basis and a $350,000 FMV to Veronica, a 30% shareholder. Veronica has a $150.000 basis in her NEIU stock. The land is inventory in the hands of NEIU Corporation. NEIU Corporation must recognize A) no gain. B) $100,000 of long-term capital gain C) $100,000 of ordinary income. d) $350,000 of ordinary income.

Answer 1

18. Option A, With limited exceptions, a loss can be recognized by a liquidating corporation when it makes a liquidating distribution of property that has declined in value.

19. Option B, $3500 [ 7500+ 5000 - 2000 -7000]

20. Option D, $25000 loss [ 400,000 - 325,000 -100,000]

21. Option C, $100,000 of ordinary income [ $350,000 - $250,000]