Question: Parent Corporation purchased 80 percent of the stock of Subsidiary Corporation in one transaction for $200,000. The remaining 20 percent is owned by the MAC

Parent Corporation purchased 80 percent of the stock of Subsidiary Corporation in one transaction for $200,000. The remaining 20 percent is owned by the MAC partnership.

Subsidiary’s only asset is an office building depreciated on the straight-line method, with an adjusted basis of $50,000 and a value of $400,000. It is subject to a mortgage of $140,000.

a. If Parent makes a Code Sec. 338 election, what are the tax consequences to Parent, Subsidiary and MAC?

b. If Parent does not make a Code Sec.

338 election and liquidates Subsidiary under Code Sec. 332, what are the tax consequences to Parent, Subsidiary, and MAC?

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