All the outstanding stock of X Corporation is owned by Ivan (60 shares) and Flo (40 shares), who are unrelated. X has no liabilities and the following assets:
AssetAdj.Basis F.M.V.
Gainacre$100,000$400,000
Lossacre$800,000$400,000
Cash$200,000$200,000
Unless otherwise indicated, assume that Gainacre and Lossacre each asset have been held by X for more than five years.On January 1 of the current year, X adopted a plan of complete liquidation.
What are the tax consequences to X on the distribution of its assets pursuant to the liquidation plan in each of the following alternatives?
X distributes each of its assets to Ivan and Flo as tenants-in-common in proportion to their stock interests (i.e., Ivan takes a 60% interest and Flo a 40% interest in each asset).
(c)Same as (b), above, except X distributes Gainacre and the cash to Ivan and Lossacre to Flo.
(d)Same as (a), above, except X acquired Lossacre as a contribution to capital four years ago, and X was not required to reduce its basis under § 362(e). Is the result different if Lossacre had a value of $1,000,000 and a basis of $800,000 at the time it was contributed to the corporation?
(e)What result on the distributions in (c), above (i.e., Gainacre and cash to Ivan, Lossacre to Flo) if Lossacre, which had no relationship to X’s business operations, was transferred to X by Ivan and Flo in a § 351 transaction 18 months prior to the adoption of the liquidation plan, when Lossacre had a fair market value of $700,000 and an adjusted basis of $800,000? Assume, alternatively, that § 362(e)(2) did and did not apply to the contribution of Lossacre to X.”
