Under a plan of complete liquidation, Coast Corporation distributes land with a $300,000 adjusted basis and a $400,000 FMV to William, a 25% shareholder. William has a $200,000 basis in his Coast stock. The land is inventory in the hands of Coast Corporation. Coast Corporation must recognize

Question

Quizplus · Accepted Answer

Since the land is inventory in the hands of Coast Corporation, the distribution is treated as a sale of inventory and thus Coast must recognize ordinary income equal to the difference between the FMV ($400,000) and the adjusted basis ($300,000), which is $100,000. Therefore, William's basis in the land is also $100,000 and he will recognize no gain or loss upon the distribution.

Under a Plan of Complete Liquidation, Coast Corporation Distributes Land