User Account

All Pages

Liquadiation, Taxation

Assignment Help:
Realty Corporation owns a rental building (its only asset) with a gross fair market value of $1,000,000, subject to a nonrecourse mortgage of $400,000. Realty Corporation''s adjusted basis for this building is $300,000. Aaron owns all of Realty Corporation’s stock, with a total basis of $100,000. Realty Corporation has $200,000 of earnings and profits. Realty Corporation is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by Realty Corporation on $700,000 gain is $250,000 and on $600,000 gain is $200,000.
For each of the following problems (1) through (7) below, determine the amounts and character of realized and recognized gain or loss to all parties, the time of recognition, and the transferee’s basis in any property received in kind. Each question should be reproduced in bold italic type, followed by your answer in normal type. They should simply be sufficient to answer the questions.
(1) Realty Corporation sells the building, subject to the mortgage, to Barbara in the current year for $600,000 in cash. Realty Corporation then liquidates, distributing to Aaron all of the cash remaining after paying its taxes, in cancellation of Aaron’s stock in the current year.
Alternatives:
(a) Barbara pays $300,000 cash and gives Barbara’s $300,000 note payable in equal annual installments over five years. Realty Corporation’s plan of liquidation provides that Realty Corporation will stay in existence for five years for the sole purpose of collecting the note and paying the net amount over to Aaron annually.b) Barbara pays $300,000 in cash and gives Barbara’s $300,000 (face and fair market value) note payable in equal annual installments plus interest over 5 years. In liquidation, Realty Corporation distributes the net cash and the note to Aaron in the year of sale.
(c) Change the facts in (1) and (1)(b) above to assume that Realty Corporation is an S corporation and § 1374 does not apply.
(2) Realty Corporation adopts a plan of complete liquidation and distributes the property to Aaron “in kind” pursuant to this plan. Aaron then sells the property to Barbara for $600,000 in cash, with Barbara taking subject to the $400,000 mortgage. Would it matter if Aaron’s shares had varying prices per share? What if the property were subject to contingent environmental liabilities?
Alternative: Realty Corporation is an S corporation and § 1374 does not apply.
(3) Aaron sells the stock in Realty Corporation to Barbara for $600,000 in cash. Barbara promptly liquidates Realty Corporation to get direct ownership of, and a $1,000,000 basis in, the building. Was Barbara wise to pay $600,000? Could Barbara obtain a better tax result by electing S corporation status for Realty Corporation before liquidating Realty Corporation?
Alternative: Realty Corporation always had been an S corporation.
(4) Suppose that in (1) above, the gross FMV of Realty Corporation’s property is actually $1,000,000, but to induce Realty Corporation to sell, Barbara also gives Realty Corporation a “contingent” right (with no ascertainable fair market value) to receive from Barbara an additional $500,000 in 5 years if Barbara earns profits from the building in excess of any profits it historically had earned.
(5) Suppose that in (2) above, the basis for Realty Corporation’s property is $1,500,000 instead of $300,000? Would your answer change if Aaron had organized Realty Corporation two years ago by contributing the building then worth $1,500,000 with a $1,500,000 basis in exchange for all the stock and Aaron’s stock basis is now $1,500,000 (assume no debt is involved)?
(6) Suppose that in (2) above, the value of Realty Corporation’s property is $350,000 and Realty Corporation liquidates with Aaron taking subject to the $400,000 mortgage. Aaron then sells to Barbara subject to the mortgage and for no additional consideration.
(7) Realty Corporation has one shareholder, Aaron, whose stock basis is $100,000. Realty Corporation operates a business in a building whose value is $1,000,000 with an adjusted basis of $300,000. Realty Corporation has $1,000,000 in the bank. In the current year, Realty Corporation sells its operating business assets for $1,000,000 cash, which increases Realty Corporation’s total earnings and profits to $1,500,000. Also in the current year, in exchange for other assets Realty Corporation receives an installment note reportable under § 453, enters into a lease for the building with the buyers of its business, and retains part of its inventory for gradual sale in the future. Aaron, who isage 70, comes to you after all these steps have been taken and inquires whether Realty Corporation should be liquidated or should elect S corporation status to avoid paying double tax on the installment gain, the rent, the future inventory sales, and a possible sale of the building in a few years. What do you advise?

Related Discussions:- Liquadiation

Explain expatriation tax, An expatriation tax is a tax on somebody who give...

An expatriation tax is a tax on somebody who gives up their citizenship. In United States, the expatriation tax provisions under Section 877 and Section 877A of the Internal Revenu

Calculate taxable income, Caroline is a 55-year-old Australian resident. Sh...

Caroline is a 55-year-old Australian resident. She  is the chief marketing officer based in Sydney for XYZ Limited (XYZ), a public company listed on the Australian Securities Excha

Tax Assignment , I have an assignment for tax subject I need it done by 04/...

I have an assignment for tax subject I need it done by 04/24/2013 midnight here''s the case: Sarah is an economist for Smith LLC. In January 2009, she inherited three parcels of

Compute income tax, Assume that a large copy machine is being purchased by ...

Assume that a large copy machine is being purchased by your employer. the cost is 200.000$. the manufacturer claims it has a useful life of 8 years. this machine will lower operati

Capital cost allowance plen limited, On December 1 of the current year, Ple...

On December 1 of the current year, Plen Limited purchased a franchise for $70,000.The franchise has a limited life of 15 years. Which one of the following amount represents the max

Estimated tax payment, Leonard Anthony Silverman and Janice Marie Silverman...

Leonard Anthony Silverman and Janice Marie Silverman, a married couple, live at 17323 Cheryll Parkway Houston, Texas 77056-3672.  Their home telephone number is (713) 937-5629, hom

Tax payable or tax credit, Tax Payable or Tax Credit Stuart's Guitars,...

Tax Payable or Tax Credit Stuart's Guitars, which has a company tax rate of 30%, is planning to sell one of its old lathes. The machine, purchased 5 years ago for $50,000, had

Tax care, #queCongress recently enacted an non refundable credit based on t...

#queCongress recently enacted an non refundable credit based on the cost of the qualifying alcohol and drug abuse counseling programs provided by and corporate employer to its empl

Salary., introduction to income of salary

introduction to income of salary

Provide a true tax argument, a. You are engineering a Leveraged-Buy-Out (LB...

a. You are engineering a Leveraged-Buy-Out (LBO) of ACME Industries, an industrial bottle maker. After the LBO, the firm will be financed with 90% debt and 10% equity. Fred Farber,

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd