Madeleine owns 100% of Omega Corporation's common stock. On January 2 of the current year, Omega liquidates and distributes all property to Madeleine except that Omega retains cash to pay the accounts payable and any tax liability resulting from Omega's liquidation. Assume that Omega has no other taxable income or loss. Assume a 21% corporate tax rate.

  

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Omega is an accrual basis, calendar year corporation. Madeleine formed the corporation six years ago by transferring $200,000 of cash in exchange for the Omega stock. Thus, she has held the stock for six years and has a $200,000 adjusted basis in the stock. Omega's balance sheet at January 1 of the current year is as follows: Cash Assets Marketable securities Inventory Equipment Building Total Liabilities and Equity Accounts payable Common stock Basis $ 460,000 40,000 390,000 220,000 560,000 $ 1,670,000 S FMV 460,000 80,000 410.000 260,000 856,000 $ 2,066,000 $ 185,000 200,000 1,285,000 Retained earnings (and E&P) $ 1,670,000 $ 2,066,000 Total Omega has held the marketable securities for two years. In addition, Omega has claimed $20,000 of MACRS depreciation on the machinery and $150,000 of straight-line depreciation on the building. S 185,000 1,881,000 Omega is an accrual basis, calendar year corporation. Madeleine formed the corporation six years ago by transferring $200,000 of cash in exchange for the Omega stock. Thus, she has held the stock for six years and has a $200,000 adjusted basis in the stock. Omega's balance sheet at January 1 of the current year is as follows: Cash Assets Marketable securities Inventory Equipment Building Total Liabilities and Equity Accounts payable Common stock Basis $ 460,000 40,000 390,000 220,000 560,000 $ 1,670,000 S FMV 460,000 80,000 410.000 260,000 856,000 $ 2,066,000 $ 185,000 200,000 1,285,000 Retained earnings (and E&P) $ 1,670,000 $ 2,066,000 Total Omega has held the marketable securities for two years. In addition, Omega has claimed $20,000 of MACRS depreciation on the machinery and $150,000 of straight-line depreciation on the building. S 185,000 1,881,000

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