Identify which of the following statements is true.
A)The Sec. 332 nonrecognition rules apply to the parent corporation when a subsidiary corporation transfers property to the parent corporation in payment of the subsidiary's debt obligation.
B)A subsidiary corporation is prevented from recognizing gain or loss when transferring property to its parent corporation in satisfaction of an indebtedness it owes to the parent corporation as part of its complete liquidation.
C)Nonrecognition of gain or loss rules apply to a subsidiary corporation when, pursuant to its complete liquidation, the subsidiary transfers property to a third-party creditor.
D)All of the above are false.

Question

Quizplus · Accepted Answer

The statement in option B is true. According to Sec. 332 of the Internal Revenue Code, a subsidiary corporation can transfer property to its parent corporation in satisfaction of an indebtedness it owes to the parent corporation as part of its complete liquidation, and no gain or loss will be recognized by the subsidiary corporation. The nonrecognition rules do not apply to the parent corporation in this situation, as stated in option A. Option C is also false, as the nonrecognition rules apply only to the subsidiary corporation, not to third-party creditors. Option D is not correct, as option B is true.

Identify Which of the Following Statements Is True