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19 March, 22:16

Carly owns 25% of base corporation’s single class of stock and premier corporation owns the remaining 75%. carly’s basis in the base stock is $200,000 and premier corporation’s basis in the base

stock is $600,000. carly receives property with a $175,000 adjusted basis and a

$250,000 fmv and premier corporation receives property with a $600,000 adjusted

basis and a $750,000 fmv in complete liquidation of base corporation. all of

base’s cash is used to pay its liabilities. which of following statements is

correct concerning the tax effects of the liquidation?

a) neither carly nor premier corporation will recognize a gain.

b) carly will recognize some gain but premier corporation will not recognize any gain.

c) both carly and premier will recognize some gain.

d) carly will not recognize any gain but premier will recognize some gain.

+5
Answers (2)
  1. J
    19 March, 23:19
    0
    C) both Carly and Premier will recognize some gain.

    Explanation:

    Carly's gain = property's fair market value - stock basis = $250,000 - $200,000 = $50,000 gain

    Premier's gain = property's fair market value - stock basis = $750,000 - $600,000 = $150,000 gain

    In order for Premier not to recognize any gain on the distribution, it should have owned at least 80% of the corporation's stock in order to satisfy Section 332 exemption.
  2. K
    20 March, 00:13
    0
    Answer: C

    Explanation:

    both carly and premier will recognize some gain.
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