Rice Corporation, a C corporation owns 100% of the stock of Memory Corporation, a C corporation with a basis of $1,000,000. Rice also advanced $2,000,000 to cash to Memory over the last three years. There is no promissory note evidencing the debt, but Rice and Memory had an informal agreement that Memory would eventually repay the $2,000,000 with interest at 5%. Rice and Memory have recorded the $2,000,000 as an intercompany receivable and payable, and have accrued interest income and interest expense, respectively, on their books. Only interest payments have been made.

Memory adopts a plan of liquidation on December 31, 2021. Its balance sheet as of that date includes the following:

	ADJUSTED BASIS
Total Assets	4,000,000
Loan from bank	1,000,000
Payable to Rice Corporation	2,000,000
TOTAL LIABILITIES	3,000,000
Common stock	1,000,000
Retained earnings	--
Shareholder's equity	1,000,000
Total liabilities and shareholder's equity	4,000,000

As of December 31, 2021, Mercury's total assets have a fair market value of $2,000,000.

On January 1, 2022, Mercury distributes all of its assets and liabilities to Rice.

Describe the tax consequences to Rice Corporation as a result of the distribution of Memory's assets.

Answer rating: 100% (QA)

Tax Consequences to Rice Corporation from Memorys Liquidation Rice Corporation will face several tax ... View the full answer