Robin transferred her 60 percent interest to Cardinal Company as part of a complete liquidation of the company.In the exchange she received land with a fair market value of $800,000.Robin's basis in the Cardinal stock was $900,000.The land had a basis to Cardinal Company of $1,000,000.What amount of loss does Cardinal recognize in the exchange and what is Robin's basis in the land she receives? The distribution was non-pro rata to Robin, a related person.

Question

Quizplus · Accepted Answer

When a shareholder transfers their interest in a corporation to the corporation in a complete liquidation, it is treated as a sale or exchange of the stock. Since Robin's basis in the stock was $900,000 and the fair market value of the land received was $800,000, she would recognize a loss of $100,000 on the exchange.

However, since the distribution was non-pro rata to a related person (Cardinal Company), the company cannot recognize any loss on the distribution. Therefore, the answer is choice D: No loss recognized by Cardinal and a basis to Robin in the land of $800,000. Robin's basis in the land is equal to the basis of the stock she gave up in the exchange ($900,000) minus the loss she recognized ($100,000), which equals $800,000.

Robin Transferred Her 60 Percent Interest to Cardinal Company as Part