Market Corporation owns 100% of Subsidiary Corporation's stock. Market Corporation completely liquidates Subsidiary Corporation, receiving land with a $400,000 adjusted basis and a $500,000 FMV in exchange for Subsidiary stock, which has a $300,000 adjusted basis. Market Corporation has a basis in the land of

Question

Quizplus · Accepted Answer

When a parent company liquidates a subsidiary, the parent company receives the assets of the subsidiary in exchange for the stock of the subsidiary. The basis in the assets received is equal to the basis in the stock surrendered, plus any additional cash or property contributed.

In this case, Market Corporation receives land with a FMV of $500,000 in exchange for Subsidiary stock with a basis of $300,000. Therefore, Market Corporation's basis in the land is the same as the basis in the stock surrendered, plus any additional amounts contributed. As no additional amounts were contributed, the basis in the land is $300,000.

However, the basis in the land is also limited by its adjusted basis in the hands of the subsidiary. Since the adjusted basis of the land is $400,000, this limits the basis of the land in the hands of Market Corporation to $400,000.

Therefore, the correct answer is C) $400,000.

Market Corporation Owns 100% of Subsidiary Corporation's Stock