Question

Indigo corporation has a basis of $1 million in the stock of Owl Corporation, a subsidiary in which it owns 100% of all classes of stock. Indigo purchased the stock in Owl 10 years ago. In the current year, Indigo liquidates Owl and acquires assets worth $1.2 million. At the time of its liquidation, Owl Corporation had a basis of $800,000 in the assets and E&P of $500,000. Which of the following statements is correct with respect to the liquidation? a. Owl recognizes a gain of $400,000. b. Indigo has an $800,000 basis in the assets. c. Owl's E&P of $500,000 is eliminated. de trdijo recognizes gain of S200,000. e. None of these

Answer 1

According to the question, base's of stock of owl corporation = $ 1 million acquireng asset amount = $1.2 million 0 £&bz $ 500,000 base's an assets during Liquidation = $800,000 As ber the section 332 (a) liquidation, neithere indigo corporation nor owl corporation recognize any gain I loss : the amouent E & Þ of $500,000 will be carry overe to e'nergo undere sel- 381 Of Lebuedation. Hence, indigo has a basis in assets which is equal to owe corporation's basi's ore $ 800,000[sec-334(b)] so, Tobréonch) 1 is the correct answere.