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

Under a plan of complete liquidation, the basis of the properties received by Ball and Jack will be allocated based on the fair market value of the properties received.

Ball Corporation's share of the property is 80%, which translates to a value of $640,000 ($800,000 x 80%). Therefore, Ball's basis in the property will be $320,000 ($200,000 original basis + $120,000 gain recognized - $400,000 FMV).

Jack owns the remaining 20% of the property, which amounts to a value of $160,000 ($800,000 x 20%). Therefore, Jack's basis in the property will be $40,000 ($100,000 original basis - $60,000 gain recognized - $50,000 FMV).

Therefore, the best answer is B.

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