Ten years ago,Oro Corporation purchased all of the stock of Plata Corporation for $400,000.In the current year,Plata Corporation is liquidated,and all of its assets (basis of $900,000; fair market value of $1.5 million)are distributed to Oro Corporation.As a result of the liquidation,a tax consequence is:

Question

Quizplus · Accepted Answer

When a corporation liquidates and distributes its assets to its shareholder(s), the shareholder(s) would recognize a gain or loss on the distribution only if the fair market value of the distributed assets is more or less than their adjusted basis. In this case, since Plata Corporation's assets have a fair market value of $1.5 million, which is higher than their adjusted basis of $900,000, Oro Corporation would receive a distribution with a basis equal to the fair market value of the assets ($1.5 million). Therefore, Oro Corporation would not recognize a gain or loss on the liquidation and distribution of Plata Corporation's assets, and the answer is A.

Ten Years Ago,Oro Corporation Purchased All of the Stock of Plata