Question

Skylark Corporation owned 100% of the outstanding stock of Quail Corporation, having purchased the stock six years ago for 900,000. Pursuant to plan of liquidation adopted by Quail Corporation earlier in the current year, Quail distributed all its property to its shareholder. Quail distributed all its property to its shareholder. Quail Corporation had never been never been insolvent and had E&P of $800,000 (basis $200,000) to skylark Corp. What are the tax consequence to Quail and Skylark Corporation.

Answer 1

Answer : Bth Skylark Corporation and Quail Corporation will recognize $0 gain on the transfer of the property to Skylark.

Explanation:

As per Section 332, no gain or loss to be recognize by the corporate shareholder through the receipt of property from subsidiary in liquidation. Section 337 protects subsidiary from gain on loss on distribution of property to its parent company. Thus Section 332 & 337 provide tax free treatement to both Skylark Corporation and Quail Corporation on the transfer of the property to Skylark on liquidation.

Therefore $0 gain will be recognize by both company.