When a liquidating corporation pays off an unsecured debt obligation,
A)the corporation recognizes no gain or loss if it uses appreciated property.
B)the corporation recognizes no gain or loss if it uses cash.
C)the corporation recognizes any gains but not losses realized.
D)the corporation recognizes losses but not gains realized.

Question

Quizplus · Accepted Answer

When a liquidating corporation pays off an unsecured debt obligation using cash, the corporation recognizes no gain or loss because the payment is treated as a return of capital to the creditor. However, if the corporation uses appreciated property to pay off the debt obligation, it will recognize a gain equal to the difference between the property's fair market value and its adjusted basis.

When a Liquidating Corporation Pays Off an Unsecured Debt Obligation