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Heaven Corporation was a wholly-owned subsidiary of Text Corporation. Both corporations were domestic C corporations. Text...

Heaven Corporation was a wholly-owned subsidiary of Text Corporation. Both corporations were domestic C corporations. Text received a liquidating distribution of property in cancellation of its Heaven stock when Text’s tax basis in Heaven stock was $200,000. The distributed property had an adjusted basis of $125,000 and a fair market value of $300,000. Assuming no special elections, what amount of taxable gain did Heaven, the subsidiary corporation, recognize on the distribution of the property?

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Answer #1

. No gain is recognized by Jet Corporation, the parent, upon the liquidation of Sky Corporation.

No gain or loss is generally recognized in connection with the complete liquidation of a controlled subsidiary (e.g., Sky Corp.) into its parent corporation (e.g., Jet Corp.). (Note: In addition, any unused net operating loss carryovers or charitable contribution carryovers would be transferred to the successor parent corporation.)

Sky Corporation was a wholly-owned subsidiary of Jet Corporation; therefore, it was a controlled subsidiary. This was a liquidating distribution in cancellation of Jet's investment in Sky Corporation; therefore, it was a complete liquidation

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