When Gail dies,she owns 100% of the stock of an S corporation,with an adjusted basis of $10,000 and FMV of $100,000.The AB and FMV of the assets inside the S corporation are the same amounts.Gail's son Phil inherits all of the stock,but does not wish to continue the business.Therefore,the S corporation sells the assets,resulting in a $90,000 capital gain,and liquidates.Assuming that Phil is subject to a marginal tax rate of 30%,what taxes are due?

Question

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Phil obtains a step-up in basis in the stock to $100,000.When the assets are sold,the $90,000 gain flows through to increase his stock basis to $190,000.Then,when the $100,000 cash proceeds are distributed upon liquidation,Phil reports a $90,000 capital loss ($190,000 - $100,000),which can be offset against the $90,000 flow-through gain.Thus,Phil gets a step-up in basis with no tax liability.

When Gail Dies,she Owns 100% of the Stock of an S