D Corporation purchased all of the stock of E Corporation for $1 million.E's only asset is land with a basis of $200,000.E had no liabilities.D elects § 338.D also liquidates E.E is deemed to have sold its land for fair market value, and E must recognize a gain of $800,000.The tax liability resulting from the deemed sale is $272,000 ($800,000 x 34%).What is D's basis in the land?

Question

Quizplus · Accepted Answer

The basis in the land for D Corporation is stepped up to its fair market value of $1 million. However, since E Corporation must recognize a gain of $800,000 upon the deemed sale, D Corporation's basis is increased by this amount to arrive at a total basis of $1,800,000 ($1 million + $800,000). Finally, the tax liability of $272,000 is added to D Corporation's basis, resulting in a final basis of $1,272,000.

D Corporation Purchased All of the Stock of E Corporation