Wolverine Corporation made a distribution of $500,000 to Jim Harb Inc. in partial liquidation of the company

Question:

Wolverine Corporation made a distribution of $500,000 to Jim Harb Inc. in partial liquidation of the company on December 31 of this year. Jim Harb Inc. owns 100 percent of Wolverine Corporation. The distribution was in exchange for 50 percent of Jim Harb Inc.’s stock in the company. At the time of the distribution, the shares had a fair market value of $200 per share. Jim Harb Inc.’s income tax basis in the shares was $50 per share. Wolverine had E&P of $8,000,000 at the time of the distribution.
a. What is the amount and character (capital gain or dividend) of any income or gain recognized by Jim Harb Inc. as a result of the partial liquidation?
b. Assuming Wolverine made no other distributions to Jim Harb Inc. during the year, by what amount does Wolverine reduce its E&P as a result of the partial liquidation?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due....

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