A subsidiary corporation is liquidated at a time when it is indebted to its parent corporation. The subsidiary corporation distributes property to the parent corporation in satisfaction of the indebtedness. If the liquidation is governed by §
332, neither the subsidiary nor the parent recognizes gain or loss on the transfer of property in satisfaction of indebtedness.

Question

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In a §332 liquidation, the parent corporation does not recognize gain or loss on the receipt of property, but the subsidiary may recognize gain or loss on the distribution of property in satisfaction of indebtedness.

A Subsidiary Corporation Is Liquidated at a Time When It