Question

In a liquidating distribution, Ryan Inc distributes land to its shareholders. Ryan Inc acquired the land...

In a liquidating distribution, Ryan Inc distributes land to its shareholders. Ryan Inc acquired the land 3 years ago in a §351 transfer. Ryan Inc distributes land with FMV of $1,800,000, adjusted basis of $400,000 pro-rata to its two individual shareholders Adama and Brent. Adam and Brent do not get along and are not related to each other. Adam (80%) owner has stock basis of $87,000. Brent (20%) owner has stock basis of $20,000.

a. What is the tax result to Ryan Inc on the distribution?

b. What is the tax result (including basis of the property received) to Adam?

c. What is the tax result (including basis of the property received) to Brent?

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Answer #1

Ryan Inc.

Fair market value of the land

1800000

Less: Adjusted basis

400000

Profit on sale of land

1400000

Ryan Inc. is liable to pay tax on the profit of distribution of land to its individual shareholders at FMV.

Adam

Share of Adam

80%

Share of land of Adam

1440000

(1800000 x 80%)

Less: Cost basis of stock

87000

Profit of Adam

1353000


Thus, Adam is liable to pay tax on the profit of $1353000.

Adam

Share of Brent

20%

Share of land of Brent

360000

(1800000 x 80%)

Less: Cost basis of stock

20000

Profit of Brent

340000

Thus, Brent is liable to pay tax on the profit of $340000.

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