Perch Corporation has made paint and paint brushes for the past ten years.Perch Corporation is owned equally by Arnold,an individual,and Acorn Corporation.Perch Corporation has $100,000 of accumulated and current E&P.Both Arnold and Acorn Corporation have a basis in their stock of $10,000.Perch Corporation discontinues the paint brush operation and distributes assets worth $10,000 each to Arnold and Acorn Corporation in redemption of 20% of their stock.Due to the distribution,Arnold and Acorn Corporation must report:

Question

Quizplus · Accepted Answer

B)Acorn Corporation is a corporate shareholder and not eligible for the partially liquidating distributions to be treated as a sale since the distribution is pro rata.Arnold is eligible for sale treatment under the Sec.302(b)(4)partial liquidation rules.

Perch Corporation Has Made Paint and Paint Brushes for the Past