Reference no: EM133093105

Question - A and B, unrelated individuals, were the sole shareholders of L corporation. A was a 60% shareholder and B was a 40% shareholder. Pursuant to a plan of liquidation, L liquidated and distributed its two assets to A and B pro rata. (Asset#1 a capital asset acquired 2 years ago in a Section 351 transaction with a fair market value ("FMV") of $100,000 and an adjusted basis of $110,000 and Asset #2 an ordinary asset acquired two years ago in a taxable purchase with a FMV of $60,000 and adjusted basis of $70,000). L also distributed a liability of $10,000 (pro rata). L had no other tax attributes or transactions.

A's adjusted basis $100,000 and B's adjusted basis was $20,000 in their L shares respectively.

i. What income, gain or loss, if any, does L recognize as a result of the Liquidation?

ii. What income, gain of loss, if any, does B recognize as a result of the Liquidation?

iii. What adjusted basis does A take in A's share of Asset #1?