Question

Jack Corporation is owned 75% by Sherri and 25% by Mark. Sherri and Mark have $125,000...

Jack Corporation is owned 75% by Sherri and 25% by Mark. Sherri and Mark have

$125,000 and $50,000 bases in their stock, respectively. Jack Corporation adopts a plan of

liquidation on March 1. On April 12, Sherri receives the following property as a liquidating

distribution: cash of $30,000; land, $125,000 FMV; and 150 shares of Green Corporation

stock, $30,000 FMV. The land is subject to a $20,000 mortgage. On the same date, Mark

receives $10,000 FMV of Green stock (50 shares) and cash of $45,000 as a liquidating

distribution. The land has a basis of $50,000 and the stock has a basis of $70,000 in Jack

Corporation's hands. Both are capital assets to Jack Corporation and have been held for a

number of years.

a) What is the amount and character of Jack Corporation's recognized gain or loss on the liquidating distributions?

b) What are the amounts and characters of Jack and Sherri's recognized gains or losses?

c) What are the bases of the land and stock to Sherri and Mark??

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Homework Answers

Answer #1

(a)

Land :($105,000 net FMV+$20,000 liabilities)-$50,000

=$75,000 long-term capital gain

Stock:$40,000 -$70,000=$30,000

realized long-term capital loss.Jack recognises the entire loss because the stock is not disqualified property and is distributed in the same proportion (25% for mark and 75 % for sherri)as mark and sherri's stockholdings

(b)

Sherri: ($30,000 +$125,000+$30,000-$15,000 liabilities )-$125,000=$45,000 capital gain.

Mark: ($10,000 +$45,000)-$50,000=$5,000 capital gain

(c)

Sherri :land $125,000 ;stock ,$30,000

Mark :stock $10,000

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