Scarlet Corporation, the parent corporation, has a basis of $600,000 in the stock of Brown Corporation, a subsidiary in which it owns 90% of all classes of stock. Scarlet purchased the stock in Brown Corporation 10 years ago. In the current year, Scarlet Corporation liquidates Brown Corporation and acquires assets worth $800,000 and with a tax basis to Brown Corporation of $950,000. What basis will Scarlet Corporation have in the assets acquired from Brown Corporation?
A) $0
B) $600,000
C) $800,000
D) $950,000
E) None of the above

Question

Quizplus · Accepted Answer

In a tax-free liquidation of a subsidiary into a parent corporation, the parent corporation takes a carryover basis in the assets received, which is the same as the subsidiary's basis in those assets. Therefore, Scarlet Corporation will have a basis of $950,000 in the assets acquired from Brown Corporation.

Scarlet Corporation, the Parent Corporation, Has a Basis of $600,000