Greg, a cash method of accounting taxpayer, owns 100 shares of Parker Corporation stock with a basis of $20,000. Greg receives two liquidating distributions of $8,000 on March 3 of last year, and $8,000 on August 8 of this year. The amount of the second distribution is not known until June 15 of this year.

Greg recognizes:

A) a gain of $8,000 last year and a loss of $12,000 this year.

B) a loss of $2,000 last year and a loss of $2,000 this year.

C) no loss last year and a $4,000 loss this year.

D) none of the above

The correct option is C, no loss last year and a $4000 loss this year

Explanation:

The task here is to ascertain the gain or loss on Greg entire 100 shares in Parker Corporation with a basis of $20,000.

To start with, Greg cannot with certainty determine whether a loss or gain has occurred until the total proceeds from the shares is known, hence upon receipt of $8000, no gain or loss can be computed.

Finally, by receiving additional $8000 in current year, it is now crystal clear that the total amount realized is $16,000, as a result, Greg has lost $4000 on the investment (Proceeds less basis amount).

Proceeds ($8000*2) $16,000

Basis ($20,000)

Loss on shares ($4,000)

Option C is correct one.

Explanation:

Greg recognizes no loss last year and a $4,000 loss this year.