Wilbur owns 600 of 1,000 outstanding shares of Dayton Airplane and Bicycle Corporation (Dayton). Wilbur acquired 400 shares for $50,000 approximately 20 years ago and 200 shares late last year for $1,900,000. 405 406 TAXATION OF CORPORATIONS AND SHAREHOLDERS P ART l What are the tax consequences to Wilbur on the liquidation of Dayton in the following alternative situations? 

(a) Dayton sells its assets for cash, after which it has aggregate current and accumulated earnings and profits of $7,400,000. Mter paying all its debts, Dayton distributes $6,000,000 to Wilbur in complete liquidation. 

(b) Dayton sells its assets for cash, after which it has a deficit in earnings and profits. Dayton distributes $300,000 to Wilbur in complete liquidation. 

(c) Dayton was unable to find a single purchaser for all of its assets. It sold some of its assets last year and distributed $3,000,000 to Wilbur last year. This year, after selling its remaining assets and paying its debts, it distributes $1,500,000 to Wilbur. Is the date of adoption of a formal plan of liquidation crucial? Does the nature of the assets sold last year have any bearing on whether the adoption of a formal plan of liquidation is important?

Answer rating: 100% (QA)

1 a Tax consequences to Wilbur on liquidation Gain on distribution for Dayton is 4050000 b Tax consequences to Wilbur on liquidation Loss on distribut... View the full answer