Shrike Corporation is liquidated and its assets are distributed to its 10 equal and unrelated individual shareholders.The assets distributed are as follows: One of the tax consequences of the liquidating distribution is:

Question

Shrike Corporation is liquidated and its assets are distributed to its 10 equal and unrelated individual shareholders.The assets distributed are as follows:  One of the tax consequences of the liquidating distribution is:

Quizplus · Accepted Answer

When a corporation is liquidated, the assets are distributed to its shareholders who will receive a basis equal to the fair market value of the property they receive. In this case, the 10 shareholders will each receive a basis of $110,000 in the distributed assets ($1,100,000 ÷ 10). There is no mention of Shrike Corporation recognizing a gain or loss, so choices A and B are incorrect. Choice C is incorrect because the basis for each shareholder would be $100,000, which is the amount of cash distributed, but they also receive other assets in addition to the cash. Therefore, choice D is the correct response.

Shrike Corporation Is Liquidated and Its Assets Are Distributed to Its