Market Corporation owns 100% of Subsidiary Corporation's stock. Market Corporation completely liquidates Subsidiary Corporation, receiving land with a $400,000 adjusted basis and a $500,000 FMV in exchange for Subsidiary stock, which has a $300,000 adjusted basis. Market Corporation has a basis in the land of

Question

Quizplus · Accepted Answer

When Subsidiary Corporation is completely liquidated, Market Corporation receives land in exchange for their Subsidiary stock. According to the facts, the land has a FMV of $500,000 and an adjusted basis of $400,000. Since Market Corporation received the land in exchange for their Subsidiary stock, the basis of the land equals the adjusted basis of the Subsidiary stock, which is $300,000. However, since the FMV of the land is greater than the basis of the Subsidiary stock, Market Corporation must increase their basis to the FMV of the land. Therefore, the basis of the land for Market Corporation is $400,000 ($500,000 FMV).

Market Corporation Owns 100% of Subsidiary Corporation's Stock