Ball Corporation owns 80% of Net Corporation's stock and Jack owns the remaining 20% of Net Corporation's stock. Ball's basis in the Net stock is $200,000 and Jack's basis in the Net stock is $100,000. Under a plan of complete liquidation, Ball Corporation receives property with an adjusted basis of $400,000 and an FMV of $800,000 and Jack receives property with an adjusted basis of $50,000 and an FMV of $200,000. Ball and Jack's recognized gains on the liquidation are:

Question

Quizplus · Accepted Answer

Ball Corporation's recognized gain is calculated by subtracting its basis ($200,000) from the FMV of the property it received ($800,000), resulting in a recognized gain of $600,000. However, since Ball owns 80% of Net Corporation's stock, it is only responsible for recognizing 80% of the recognized gain, or $480,000.
Jack's recognized gain is calculated by subtracting his basis ($100,000) from the FMV of the property he received ($200,000), resulting in a recognized gain of $100,000. Since Jack owns 20% of Net Corporation's stock, he is responsible for recognizing 20% of the recognized gain, or $20,000.
Therefore, the total recognized gain for the liquidation is $480,000 + $20,000 = $500,000, which corresponds to choice B.

Ball Corporation Owns 80% of Net Corporation's Stock and Jack