The stock of Loon Corporation is held as follows: 85% by Duck Corporation and 15% by Gerald, an individual. Loon Corporation is liquidated in December of the current year pursuant to a plan adopted earlier in the year. Loon Corporation distributes land with a basis of $350,000 and fair market value of $390,000 to Gerald in liquidation of his stock interest. Gerald had a basis of $200,000 in his Loon stock. How much gain will Loon Corporation recognize in this liquidating distribution?
A) $0
B) $40,000
C) $190,000
D) $390,000
E) None of these.

Question

Quizplus · Accepted Answer

Loon Corporation will recognize a gain of $40,000, which is the difference between the fair market value ($390,000) and the basis ($350,000) of the land distributed to Gerald in the liquidation.

The Stock of Loon Corporation Is Held as Follows: 85