Question

ASSUME ALL CORPORATIONS ARE C CORPORATIONS

In year 3, the Corporation liquidates their operations and the following information is provided:
Accumulated earnings and profits 150,000
Fair Market value of Building $550,000
Basis of Stock: Jill $500,000, John 500,000, Paul 27,500
The distribution is As follows:
Jill receives $525,000, Paul receives $50,000 and John receives the building in a total liquidation process.
1. What are the tax ramifications to J and J Corporation?
2. what are the tax ramifications to Jill, John and Paul.

Answer 1

Acculumated Earning & Profit	$      150,000.00
Fair Market value of Building	$      550,000.00
Total Realised	$      700,000.00
Shareholders	Stock Held	Percentage to Total Stock
Jill	$      500,000.00	48.66%
John	$      500,000.00	48.66%
Paul	$        27,500.00	2.68%
Total	$ 1,027,500.00	100.00%
Total Distribution
Jill	$      525,000.00
John	$      550,000.00
Paul	$        50,000.00
Total	$ 1,125,000.00
1. Tax Ramifications to J and J Corporation
Shareholder Base	1027500
Distribution	1125000
capital Loss to J and J Corporation	97500
(Since distribution to shareholders was more than the contributions by shareholders, J and J will bear Capital Loss as a result of such distribution)
2. Tax Ramifications to Jill, John and Paul
Distribution	Received (a)	Stock Held (b)	Capital Gains c = (a-b)
Jill	$      525,000.00	$          500,000.00	$                       25,000.00
John (received building)	$      550,000.00	$          500,000.00	$                       50,000.00
Paul	$        50,000.00	$            27,500.00	$                       22,500.00
Total	$ 1,125,000.00	$      1,027,500.00	$                       97,500.00