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    Corporate Distributions in Complete Liquidations.

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    Corporation A owns 100 percent of the stock of Corporation B, and also owns B Corporation debentures with a face amount (and basis) of $200,000. A plan of liquidation is adopted and Corporation B is liquidated under Code Sec.332.

    Pursuant to the liquidation, Corporation B inventory with a FMV of $200,000 and a basis of $140,000 in cancellation of the debentures.
    a. How much gain is recognized by B Corporation on the distribution of the inventory to Corporation A?

    b. What is Corporation A's tax basis for the inventory received from Corporation B?

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    Solution Preview

    Requirement a
    Fair Market Value $200,000
    Cost basis 140,000
    Gain recognized $60,000

    Requirement b
    $200,000 is Corporate A's tax basis ...

    Solution Summary

    Corporate distributions in complete liquidations or Corporation A and Corporation B are examined.