1.Target Corporation (“T”) is a “C” corporation. T’s 1,000 shares of common stock (its only class) are owned by three unrelated individual shareholders as follows:

Shareholder	No. Shs.		Adj. Basis		F.M.V.
A	500	$  50,000		$   500,000
B	400	40,000		400,000
C	100	140,000		100,000
Total	1,000	$230,000		$1,000,000

A and B are in their late 70’s and have held their T stock since the company was founded many years ago. C recently inherited her stock.

T has $400,000 of accumulated earnings and profits and the following assets (all held long-term) and liabilities:

Assets	Adj. Basis		F.M.V.
Cash	$200,000		$   200,000
Inventory	50,000		100,000
Equipment ($100,000 § 1245 recapture)	100,000		200,000
Building (no recapture)	50,000		300,000
Securities	400,000		300,000
Goodwill	0		200,000
Total	$800,000		$1,300,000
Liabilities
Bank loan			300,000
Total			$   300,000

383

T and its shareholders are considering a sale of the business. Purchaser Corporation (“P”) is interested in acquiring T. If specific computations are required by your instructor, assume (for computational convenience) that C corporations are taxed on all their income at a flat corporate rate of 20 percent and individuals are taxed at a flat 40 percent rate on ordinary income and a 20 percent rate on long-term capital gains (and ignore the 3.8 percent tax on net investment income).

What are the tax consequences of the following alternative acquisition methods to T, T’s shareholders, and P?

T adopts a plan of complete liquidation, sells all of its assets (except the cash but subject to the bank loan) to P for $800,000 cash, and distributes the after-tax proceeds to its shareholders in proportion to their stock holdings.

Answer rating: 100% (QA)

In the scenario where Target Corporation T adopts a plan of complete liquidation sells its assets except cash to Purchaser Corporation P for 800000 in ... View the full answer