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CORPORATE LIQUIDATION In the current year, Shearwater Corp is liquidated. The company distributes its only asset...

CORPORATE LIQUIDATION

In the current year, Shearwater Corp is liquidated. The company distributes its only asset (land with a FMV of 100,000 and an adjusted basis of 20,000) to Oscar, its sole shareholder. Oscar's basis in the stock is 60,000.

a. What are the amount and character of the gain or loss recognized by Oscar upon the liquidation?

b. What is Oscar's basis in the land?

c. Is there any tax ramification to Shearwater?

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Answer #1

Under the corporate liquidation, shareholders recognize the capital gain or loss if there is a difference between FMV of properties received and its adjusted basis of shares.

a.      What are the amount and character of the gain or loss recognized by Oscar upon the liquidation?

Capital Gain recognized = 40000 (100000 FMV – 60000 Shares Basis)

b.     What is Oscar's basis in the land?

Oscars Basis in the land equals the fair market value of land i.e. $100,000

c.      Is there any tax ramification to Shearwater?

Yes, Shearwater recognizes the gain of $80,000 (100000-20000) assuming the land is sold.

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