Skylark Corporation owned 100% of the outstanding stock of Quail Corporation having purchased the stock six years ago for $200,000. Pursuant to a plan of liquidation adopted by Quail Corporation earlier in the current year, Quail distributed all its property to its shareholder. Quail Corporation had never been insolvent and had E & P of $700,000 on the date of liquidation. Pursuant to the liquidation, Quail distributes property worth $650,000 (basis $340,000) to Skylark Corporation. How much gain must the parties recognize on the transfer of this property to Skylark?
A) $0 as to both Skylark and Quail.
B) $140,000 as to Skylark.
C) $310,000 as to Quail.
D) $450,000 as to Skylark.
E) None of these.

Question

Quizplus · Accepted Answer

Under IRC Section 332, no gain or loss is recognized by a parent corporation on the receipt of property distributed in complete liquidation of a subsidiary. Therefore, neither Skylark nor Quail recognizes gain on the transfer.

Skylark Corporation Owned 100% of the Outstanding Stock of Quail