Katarina transferred her 10 percent interest to Spartan Corporation as part of a complete liquidation of the company.In the exchange she received land with a fair market value of $200,000.Katarina's basis in the Spartan stock was $100,000.The land had a basis to Spartan Company of $50,000.What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives?

Question

Quizplus · Accepted Answer

When Katarina transfers her interest to Spartan Corporation as a part of a complete liquidation, it is treated as a sale of her stock back to the corporation. The land with a fair market value of $200,000 received by Katarina is treated as proceeds from the sale. 
The gain recognized by Spartan Corporation is calculated as follows: 
Proceeds from sale: $200,000 
Basis in stock: $100,000 
Gain recognized by Spartan Corporation: $100,000

Katarina's basis in the land is equal to the basis of the stock transferred, increased by the gain recognized: 
Stock basis: $100,000 
Gain recognized: $100,000 
Katarina's basis in the land: $200,000

Katarina Transferred Her 10 Percent Interest to Spartan Corporation as Part