Gabriel Corporation is owned 90% by Zeier Corporation and 10% by Ray Goff, a Gabriel employee. A preliquidation balance sheet for Gabriel is presented below:

Gabriel has claimed $150,000 of MACRS depreciation on the equipment. Gabriel purchased the land three years ago as a potential plant site. Plans to build the plant never were consummated, and Gabriel has held the land since then as an investment. Zeier and Ray Goff have $90,000 and $10,000 bases, respectively, in their Gabriel stock. Both shareholders have held their stock since the corporation’s inception ten years ago. Gabriel adopts a plan of liquidation. Gabriel transfers $500,000 of inventory to Zeier to retire the bonds. The shareholders receive their share of Gabriel’s remaining assets and assume their share of Gabriel’s liabilities (other than federal income taxes). Gabriel pays federal income taxes owed on the liquidation. Assume a 21% corporate tax rate. What are the tax consequences of the liquidation to Ray Goff, Zeier Corporation, and Gabriel Corporation?

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Assets Basis FMV $ 100,000 420,000 80,000 400,000 $ 100,000 700,000 100,000 300,000 $1,200,000 Cash Inventory Equipment Land Total $1,000,000 Liabilities & Equity Accounts payable Bonds payable to Zeier Common stock Retained earnings (and E&P) $ 100,000 500,000 100,000 300,000 $1,000,000 $ 100,000 500,000 600,000 Total $1,200,000