Prime Corporation liquidates its 85%-owned subsidiary Bass Corporation under the provisions of Secs.332 and 337.Bass Corporation distributes land to its minority shareholder,John,who owns a 15% interest.The property received by John has a $55,000 FMV.The land was used in the Bass Corporation's business and has a $65,000 adjusted basis and is subject to a $10,000 liability,which is assumed by John.John's basis in his stock is $25,000.What gain or loss will John and Bass Corporation recognize on the distribution of the land?

Question

Quizplus · Accepted Answer

Since the distribution is made in complete liquidation of a subsidiary under Secs.332 and 337, John's receipt of the land will be treated as full payment for his stock in Bass Corporation. Thus, John will recognize a gain/(loss) equal to the difference between the FMV of the land ($55,000) and his adjusted basis in his stock ($25,000), or $30,000 of gain.

Bass Corporation will recognize a loss equal to the excess of the adjusted basis of the land ($65,000) over the amount realized from the distribution ($55,000), or $10,000 of loss.

Prime Corporation Liquidates Its 85%-Owned Subsidiary Bass Corporation Under the Provisions