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Liquidation - Tax Accounting

1. Complete liquidation - open transaction

ABC,Inc. adopts a plan of complete liquidation on July 3, 10*1 and pursuant to the plan makes the following distributions to Anne Able, its sole shareholders, who has a basis of $26,000 for her stock:

July 23,20*1 $9,000
Mar 11,20*2 $14,000
Sep 1, 20*3 $11,000
May 4,20*4 (final distribution) $5,000

How will Anne Able account for each distribution ?

2. ABC,Inc.liquidates by distributing its sole assets( FMV $7,000,Basis $2,000) to its sole shareholders. How must ABC, Inc. account for the distribution?

3. Assume the same facts as set out in No 2 above, except that the asset is subject to a liability of $500. How must ABC, Inc. account for the distribution?

4. Complete liquidation - Corporate loss

Anne Able and Brenda Baker owns 100 % of the outstanding capital stock of ABC, Inc.(Able 60% and Baker 40%). ABC, Inc. liquidates by distributing its assets as set out below.

Asset To Able To Baker
Cash $10,000 $2,000 $ 8,000
Land $10,000 FMV $10,000
13,000 Basis

Will ABC, Inc. recognize any loss on the distribution of land to Anne Able ?

5. Albert Able, sole shareholder of ABC, Inc., distributes an asset (FMV $1,000, Basis $ 3,000) to ABC, Inc. in a qualifying IRC 351 exchange. A short time later, ABC, Inc. liquidates and distributes the asset to Albert. Will ABC, Inc. recognize any loss on the distribution of the asset to Albert Able ?

Solution Preview

(1) Although each distribution is less than her basis, Anne doesn't recognize a loss after each of those distributions. After she receives the last distribution, she is going to recognize a gain of (9,000 + 14,000 + ...

Solution Summary

The solution discusses liquidation and tax accounting.

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