When Tyson dies, he owns 100% of the stock of an S corporation, with an adjusted basis of $300,000 and FMV of $500,000.The adjusted basis and FMV of the assets, all of which are capital, of the S corporation are the same amounts.Tyson's son inherits all of the stock, but does not wish to continue the business.Therefore, the S corporation sells the assets, resulting in a $200,000 gain and liquidates.Assuming the son has a marginal tax rate of 30%, what taxes are due?

Question

Quizplus · Accepted Answer

The gain from the sale of the assets is $200,000. Since the son inherits the stock, he receives a step-up in basis to the FMV of $500,000. The gain is recognized at the corporate level and passed through to the son, but the step-up in basis means there is no additional gain at the shareholder level. Therefore, no taxes are due.

When Tyson Dies, He Owns 100% of the Stock of an S