Melon Corporation, which is owned equally by four individual shareholders, adopts a plan of liquidation for distributing the following property:
• Land (a capital asset) having a $30,000 FMV and a $12,000 adjusted basis.
• Depreciable personal property having a $15,000 FMV and a $9,000 adjusted basis. Melon has claimed depreciation of $10,000 on the property during the three years since its acquisition.
• Installment obligations having a $30,000 FMV and face amount and a $21,000 adjusted basis, acquired when Melon sold a Sec. 1231 property.
• Supplies that cost $6,000 and were expensed in the preceding tax year. The supplies have a $7,500 FMV.
• Marketable securities having a $15,000 FMV and an $18,000 adjusted basis. Melon purchased the marketable securities from a broker 12 months ago.
a. Which property, when distributed by Melon Corporation to one of its shareholders, will require the distributing corporation to recognize gain or loss?
b. How will your answer to Part a change if the distribution instead is made to Melon’s parent corporation as part of a complete liquidation meeting the Sec. 332 requirements?
c. How will your answer to Part b change if the distribution instead is made to a minority shareholder?