Leah Pasternak Federal Taxation ACC317 Chapter 20: Corporations: Distributions in Complete Liquidation and an Overview of Reorganization Homework

k Submission

20. Mulberry Corporation cannot recognize any of the realized loss of $75,000 since both shareholders are related parties and own 100% of the stock of Mulberry. Also, the land was transferred to the Mulberry Corporation within the five-year before the liquidation took effect. Because of this, the related-party loss limitation applies to the distribution of the land. Since disqualified property was distributed to related parties, is does not matter that the distribution is considered pro rata. 24 a. The land is disqualified property that is distributed to a related party; thus, the entire $160,000 loss realized is disallowed under the related-party loss limitation. b. The property had a built-in loss of $90,000 when it was transferred to Pink Corporation originally. Since the transfer occurred within 2 years of the date the plan of liquidation was adopted the built-in loss of $90,000 is disallowed. The remaining $130,000 loss can be recognized. Because Paul owns only 15% he is considered an unrelated party therefore, the related-party loss limitation does not apply to a distribution to him. Pink Corporation needs to establish a solid business reason for the transfer of the property to the corporation and see if they can rebut the 2-year presumption rule, that way the entire $220,000 loss would be recognized. c. The loss on the property distributed to Maria will be disallowed in its entirety because it is a distribution of disqualified property to a related party. Unless Pink Corporation can rebut the presumption of a tax avoidance purpose for the transfer, an additional $13,500 of the loss will be disallowed. $19,500 of the loss will still be recognized from the post transfer loss amount. Pink Corporation needs to rebut the 2-year presumption rule so that $33,000 of the loss can be recognized. d. The loss on the distribution of disqualified property to Maria will be disallowed due to the related party loss limitation. Of the remaining $120,000 loss, 50% of the built-in loss of $90,000 will be disallowed unless Pink Corporation can demonstrate a business purpose for the transfer. If Pink can rebut the 2-year presumption rule, $120,000 of the loss distribution to Paul can be recognized. e. If Pink Corporation cannot show a business purpose for the transfer then the built-in loss of $90,000 would be disallowed. The remaining $130,000 loss can be recognized. If Pink can rebut the 2year presumption rule, the entire $220,000 loss would be recognized. The related-party loss limitation does not apply to a sale of property. 25. Scarlet Corporation will recognize a long-term capital gain of $35,000 on the liquidating distribution of land. Jake will recognize a long-term capital gain of $365,000. 29. Green Corporation recognizes no gain on the transfer of the land. Transfers by a subsidiary corporation pursuant to a 332 liquidation are subject to the non-recognition rules of 337. Orange Corporation, however, will recognize a loss of $50,000.

32. Beths basis in her original Cerise stock would carry over after the consolidation with Pink Corporation, so her new basis would be $160,000. Normally there is no realized gain or loss when exchanging stock during a consolidation however, Beth would have to treat the $200,000 bond as boot and would therefore realize a gain of $40,000.