Pamela owns 100% of Sigma Corporation€™s stock. She purchased her stock ten years ago, and her current basis for the stock is $300,000. On June 10, Pamela decided to liquidate Sigma. Sigma€™s balance sheet prior to the sale of the assets, payment of the liquidation expenses, and payment of federal income taxes is as follows:

€¢ The corporation has claimed depreciation of $150,000 on the equipment.
€¢ The corporation received the marketable securities as a capital contribution from Pamela three years earlier at a time when their adjusted basis was $90,000 and their FMV was $70,000.
€¢ Sigma incurred $20,000 in liquidation expenses in its final tax year.
a. What are the tax consequences of the liquidation to Pamela and Sigma Corporation? Assume a 34% corporate tax rate.
b. How would your answer change if Pamela contributed the marketable securities six years ago?

Transcribed Image Text:

Assets Basis FMV Cash $240,000 S 240,000 Marketable securities 90,000 80,000 Equipment 150,000 200,000 Land 320,000 680,000 . Total S800,00 $1,200,000 Equity Common stock S300,000 S1,200,000 Retained earnings (and E&P) 500,000 Total $800,000 S1,200,000