Reference no: EM13136497
Tax consequences of a Corporate Liquidation. Marsha owns 100% of Gamma Corporation's common stock. Gamma is an accural basis, calendar year corporation. Marsha formed the corporation six years ago transferring $250,000 of cash in exchange for the Gamma stock. Thus, she has held the stock for six years and has a $250,000 adjusted basis in the stock. Gamma's balance sheet a January 1 of the curret year is a follows:
Assets Basis FMV
Cash $400,000 $400,000
Marketable securities 50,000 125,000
Inventory 300,000 350,000
Equipment 200,000 275,000
Building 500,000 750,000
Total 1,450,000 1,900,000
Liabilites and Equity
Accounts payable $175,000 $175,000
Common Stock 250,000 1,725,000
Retained earnings (and E&P) 1,025,000
Total 1,450,000 1,900,000
Gamma has held the marketable securities for two years. In addition, Gamma has claimed $60,000 of MACRS depreciation on the machinery and $90,000 of straight-line depreciation on the building. On January 2 of the current year, Gamma liquidates and distributes all property to Marsha except that Gamma retains cash to pay the accounts payable and any tax liability resulting from Gamma's liquidation. Assume that Gamma has no other taxable income or loss. Determine the tax consequences to Gamma and Marsha.
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