Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of the company.In the exchange she received land with a fair market value of $200,000.Katarina's basis in the Spartan stock was $100,000.The land had a basis to Spartan Company of $50,000.What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives?

Question

Quizplus · Accepted Answer

When a shareholder transfers their interest in a corporation as part of a complete liquidation, the corporation must recognize any gain or loss on the transfer. In this case, the Spartan Company has a basis of $50,000 in the land received from Katarina, but the fair market value is $200,000. Therefore, Spartan Company must recognize a gain of $150,000 ($200,000 - $50,000).

Katarina's basis in the land she receives is equal to her basis in the Spartan Company stock she transferred, which is $100,000. This is because the land is received as a result of the transfer of her stock.

Therefore, the correct answer is B, $150,000 gain recognized by Spartan and a basis in the land of $200,000.

Katarina Transferred Her 10 Percent Interest to Spartan Company as Part