Dusty Corporation owns 90% of Palace Corporation's stock and Susan owns the remaining stock.Dusty Corporation's stock basis is $300,000 and Susan's stock basis is $20,000.Under a plan of complete liquidation,Dusty Corporation receives property with a $400,000 adjusted basis and a $540,000 FMV and Susan receives property with a $20,000 adjusted basis and a $60,000 FMV.The bases of the properties are:

Question

Quizplus · Accepted Answer

Dusty Corporation receives property with a $400,000 adjusted basis and a $540,000 FMV. Since Dusty Corporation owns 90% of Palace Corporation's stock, it will receive 90% of the liquidation proceeds. Therefore, Dusty Corporation's share of the property will be:
($540,000 x 0.9) = $486,000 FMV
($400,000 x 0.9) = $360,000 adjusted basis
Susan receives property with a $20,000 adjusted basis and a $60,000 FMV.
Therefore, the bases of the properties are:
Dusty Corporation: 
FMV = $486,000 
Adjusted basis = $360,000 
Susan: 
FMV = $60,000 
Adjusted basis = $20,000

Dusty Corporation Owns 90% of Palace Corporation's Stock and Susan