On April 12,2007,Crow Corporation acquired land in a transaction that qualified under § 351.The land had a basis of $350,000 to the contributing shareholder and a fair market value of $200,000.Assume that the shareholder also transferred equipment (basis of $30,000,fair market value of $180,000)in the same § 351 exchange.Crow Corporation adopted a plan of liquidation on October 3,2008.On December 4,2008,Crow Corporation distributes the land to Ali,a shareholder who owns 20% of the stock in Crow Corporation.Value of the land has declined to $130,000 on the date of the distribution to Ali.Crow Corporation acquired the land to use as security for a loan it had hoped to obtain from a local bank.In negotiating with the bank for a loan,the bank required the additional capital investment as a condition of its making a loan to Crow Corporation.How much loss can Crow Corporation recognize on the distribution of the land?

Question

Quizplus · Accepted Answer

Crow Corporation had a business reason for acquiring the land.Further,the land was not distributed to a related party.Thus,the loss limitation provisions do not apply and the entire loss of $220,000 [$130,000 (fair market value)- $350,000 (land basis)] is allowed.[Note that the § 362(e)(2)basis adjustment rules for loss properties acquired in carryover basis transactions does not apply to the land,as there was no net built-in loss on the two properties transferred by shareholder.Section § 362(e)(2)is discussed in Chapter 4.]

On April 12,2007,Crow Corporation Acquired Land in a Transaction That