TAX 311Liquidations©2013 Vincent R. BarrellaI.A.X Corporation is owned by a single individual, A. X

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TAX 311Liquidations©2013 Vincent R. BarrellaI.A.X Corporation is owned by a single individual, A. X has three assets: Cash$20,000; Inventory FMV $190,000, AB $140,000; Land FMV $180,000, AB$210,000. X adopts a formal plan of liquidation and immediately thereafterdistributes its assets to A. A’s adjusted basis in his X Corporation stock is equal to$285,000? What are the tax consequences of this liquidation to X Corporation andA?1. How would your answer to part A change if X Corporation also had liabilities of$40,000?2. How would your answer to part A change if A had an adjusted basis in his XCorporation stock of $405,000.3. How would your answer to part A change if X Corporation had a contingent andspeculative liability equal to $30,000, which liability was paid by A twoyears after the corporation was liquidated?4. How would your answer to part A change if A had contributed the land to Xcorporation six months earlier in a transaction governed by section 351?II.A. S Corporation is owned 100% by P Corporation. S has three assets: Cash $20,000;Inventory FMV $200,000, AB $140,000; Land FMV $180,000, AB $210,000. Sadopts a formal plan of liquidation and immediately thereafter distributes its assetsto P. P’s adjusted basis in its S Corporation stock is equal to $285,000? P hadacquired S Corporation six years prior to the liquidation. What are the taxconsequences of this liquidation to S Corporation and X Corporation?1. Assume in part A that B an unrelated individual owned 10% of S Corporationand instead of $20,000 of cash, S Corporation owned a machine with aFMV of $20,000 and an adjusted basis of $5,000. B receives this machinefrom S Corporation pursuant to the plan of liquidation. Assume further thatB’s adjusted basis in his S Corporation stock is equal to $13,000. What arethe tax consequences to P Corporation, S Corporation and B as a result ofthe liquidation of S Corporation?2. Assume in part A that P Corporation has a second 100% owned subsidiary S2,and that S2 owns 50% of S Corporation and P Corporation owns the other50% of S Corporation. What are the tax consequences of the liquidation toP Corporation, S2, and S Corporation assuming that S2 receives theinventory and P Corporation receives the other assets of S Corporation?

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