Bell Corporation is 100% owned by George, who has a $400,000 basis in his Bell stock. Bell’s operations have been unprofitable in recent years, and it has incurred small NOLs. Its operating assets currently have a $300,000 FMV and a $500,000 adjusted basis. George is approached by Time Corporation, which wants to purchase Bell’s assets for $300,000. Bell expects to have approximately $200,000 in cash after the payment of its liabilities.
a. What are the tax consequences of the transaction if Bell adopts a plan of liquidation, sells the assets, and distributes the cash in redemption of the Bell stock within a 12-month period?
b. What advantages (if any) would accrue to Bell and George if the corporation remains in existence and uses the $200,000 of cash that remains after payment of the liabilities to conduct a new trade or business?