What are the amount and character of the gain or loss recognized by the distributing corporation when making liquidating distributions in the following situations? What is the shareholder’s basis for the property received? In any situation where a loss is disallowed, indicate what changes would be necessary to improve the tax consequences of the transaction.
a. Best Corporation distributes land having a $200,000 FMV and a $90,000 adjusted basis to Tanya, its sole shareholder. The land, a capital asset, is subject to a $40,000 mortgage, which Tanya assumes.
b. Wilkins Corporation distributes depreciable property to its two equal shareholders. Robert receives a milling machine having a $50,000 adjusted basis and a $75,000 FMV. The corporation claimed $30,000 depreciation on the machine. The corporation purchased the milling machine from an unrelated seller four years ago. Sharon receives an automobile that originally cost $40,000 two years earlier and has a $26,000 FMV. The corporation claimed $25,000 depreciation on the automobile.
c. Jordan Corporation distributes marketable securities having a $100,000 FMV and a $175,000 adjusted basis to Brad, a 66.67% shareholder. Jordan purchased the marketable securities three years ago. Jordan distributes $50,000 cash to Ann, a 33.33% shareholder.
d. Assume the same facts as in Part c except the securities and cash are instead each distributed two-thirds to Brad and one-third to Ann.