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 bases in the property received are:

Question

Quizplus · Accepted Answer

The basis of the property received is determined by the fair market value of the property and the percentage of ownership of the stock in the liquidating corporation.

Ball Corporation owns 80% of Net Corporation's stock, so they will receive 80% of the assets. The property received by Ball Corporation has an FMV of $800,000, so their basis in the property is 80% x $800,000 = $640,000.

Jack owns 20% of Net Corporation's stock, so he will receive 20% of the assets. The property received by Jack has an FMV of $200,000, so his basis in the property is 20% x $200,000 = $40,000.

Therefore, Ball's new basis is $640,000 and Jack's new basis is $40,000, which matches option B.

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