After a complete liquidation has been adopted, Wren Corporation sells its only asset, unimproved land (basis of
Question:
After a complete liquidation has been adopted, Wren Corporation sells its only asset, unimproved land (basis of $200,000) held as an investment. The land is sold to Seth (an unrelated party) for $500,000.Under the terms of the sale, Wren Corporation receives cash of $50,000and Seth’s notes for the balance of $450,000. The notes are payable over the succeeding 5 years ($90,000 per year) and carry an appropriate rate of interest. Immediately after the sale, Wren Corporation distributes the cash and notes to Adam, the sole shareholder of Wren. Adam has an adjusted basis of $80,000 in the Wren stock. The installment notes have a value equal to their face amount of $450,000.
a. How will Wren Corporation be taxed on the distribution?
b. How will Adam be taxed on his receipt of the cash and notes?
Principles of Taxation for Business and Investment Planning 2019 Edition
ISBN: 9781260161472
22nd edition
Authors: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan