Question

Kigelman Corporation, the parent corporation, has a basis of $600,000 in the stock of Brown Corporation, a subsidiary in which it owns 90% of all classes of stock. Kigelman purchased the stock in Brown Corporation 10 years ago. In the current year, Kigelman Corporation liquidates Brown Corporation and acquires assets worth $800,000 and with a tax basis to Brown Corporation of $950,000. What basis will Kigelman Corporation have in the assets acquired from Brown Corporation? Please justify your answer.

Answer 1

Ans is $950,000

As per IRS section 332, if a parent company receives property in complete liquidation of subsidiary, then on receipt of such property parent company will not recognize any loss or gain. And the basis of assets in hands of parent company will be carry over basis from subsidiary. So basis of property in hands of Kigelman will be $950,000 as original basis of Brown corporation. Kigelman basis in brown corporation stock will lapse.