Corporation #1 owns 90% of C Corporation #2. The other 10% of C Corporation #2 is owned
Question:
Corporation #1 owns 90% of C Corporation #2. The other 10% of C Corporation #2 is owned by Bob, an individual shareholder unrelated to any of the other shareholders in either C Corporation #1 or C
Corporation #2.
In 2001, C Corporation #1 created C Corporation #2 by transferring $10,000,000 to it in exchange for 100% of its stock. C Corporation #2 took the $10,000,000 it received from C Corporation #1 and bought a large piece of land in Florida and placed it in service as a Section 1231 asset.
In 2010, C Corporation #1 sold 10% of the C Corporation #2 stock that it owned to Bob for $3,000,001.
In the current year, C Corporation #2 was approached by a developer who wanted to buy its land for $40,000,001 cash. C Corporation #2 has decided to undergo a complete liquidation as part of this transaction.
Required:
a) Assuming a 21% corporate income tax rate, what will be the tax consequences, if any, of the liquidation of C Corporation #2?
b) How will the liquidation of C Corporation #2 affect C Corporation #1?
c) How will the liquidation of C Corporation #2 affect Bob?
d) Should an IRC Section 338 election be made?
e) Referring to #4 above, why or why not? (Short essay of 2-4 sentences).
Expert Answer:
a The tax consequences of the liquidation of C Corporation 2 will depend on the amount of gain reali... View the full answer
