Sleeping Corporation makes a liquidating distribution to its shareholder Ted. The liquidating distribution is land that it acquired in a §351 transfer two years ago. At the time of the contribution, the land had the basis of $100,000 and an FMV of $500,000. At the time of distribution, the FMV of the land is $60,000. Ted owns 20% of the company, Stella owns 35%, Marcus owns $25%, and Brady owns 20%. Stella is Ted’s grandmother. Marcus and Brady are Ted’s best friends from childhood.
What is the tax consequence to Sleeping Corporation on the distribution?
What is the tax consequence to Ted on the distribution if his stock basis is $300,000?
