Question 1. Pursuant to a complete liquidation, Lilac Corporati

1. Pursuant to a complete liquidation, Lilac Corporation distributes the following assets to its unrelated shareholders: land held for three years as an investment (basis of $300,000, fair market value of $600,000), inventory (basis of $100,000, fair market value of $80,000), and marketable securities held for four years as an investment (basis of $200,000, fair market value of $240,000). What are the tax consequences to Lilac Corporation as a result of the liquidation?

a. Lilac Corporation would recognize no gain or loss on the liquidation.

b. Lilac Corporation would recognize a net capital gain of $320,000.

c. Lilac Corporation would recognize a net capital gain of $340,000 and an ordinary loss of $20,000.

d. Lilac Corporation would recognize a net capital gain of $340,000.

e. None of the above.

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2. Pursuant to a complete liquidation, Oriole Corporation distributes to its shareholders land with a basis of $350,000 and a fair market value of $800,000. The land is subject to a liability of $920,000. What is Oriole’s recognized gain or loss on the distribution?

a. $0.

b. $120,000 loss.

c. $450,000 gain.

d. $570,000 gain.

e. None of the above.

3. The stock in Rhea Corporation is owned by Jennifer (80%) and Lucy (20%), mother and daughter. In a liquidation of the corporation in the current year, Rhea distributes land that it purchased two years ago for $675,000 to Lucy. The property has a fair market value on the date of distribution of $450,000. One year later, Lucy sells the land for

$400,000. What loss, if any, will Rhea Corporation recognize with respect to the distribution of land?

a. $0.

b. $45,000.

c. $225,000.

d. $275,000.

e. None of the above.

4. The stock in Toucan Corporation is held equally by two brothers. Four years ago, the shareholders transfer property (basis of $200,000, fair market value of $220,000) to Toucan Corporation as a contribution to capital. In the current year and pursuant to a complete liquidation of Toucan, the property is distributed proportionately to the brothers. At the time of the distribution, the property had a fair market value of $40,000. What amount of loss will Toucan Corporation recognize on the distribution of the property?

a. $0.

b. $20,000.

c. $160,000.

d. $180,000.

e. None of the above.

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5. Magenta Corporation acquired land in a § 351 exchange one year ago. The land had a basis of $320,000 and a fair market value of $350,000 on the date of the transfer. Magenta Corporation has two shareholders, Mark (70%) and Megan (30%), who are brother and sister. Magenta Corporation adopts a plan of liquidation in the current year. On this date, the land has decreased in value to $250,000. Magenta Corporation sells the land for $250,000 and distributes the proceeds pro rata to Mark and Megan. What amount of loss may Magenta Corporation recognize on the sale of the land?

a. $0.

b. $21,000.

c. $30,000.

d. $70,000.

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