Brown Corporation purchased 85% of the stock of Green Corporation five years ago for $850,000. In the current year, Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of
$700,000 (fair market value of $1.1 million). Brown Corporation will have a basis in the assets of $850,000, the same as Brown's basis in its Green stock.

Question

Quizplus · Accepted Answer

Brown Corporation's basis in the assets acquired from Green Corporation will be the assets' fair market value of $1.1 million, not the $850,000 basis Brown had in its Green stock. When a parent company liquidates a subsidiary and acquires its assets, the basis of those assets in the hands of the parent is generally their fair market value at the time of the acquisition.

Brown Corporation Purchased 85% of the Stock of Green Corporation