In a liquidating distribution, Ryan Inc distributes land to its shareholders. Ry
ID: 2540070 • Letter: I
Question
In a liquidating distribution, Ryan Inc distributes land to its shareholders. Ryan Inc acquired the land 3 years ago in a §351 transfer. Ryan Inc distributes land with FMV of $1,800,000, adjusted basis of $400,000 pro-rata to its two individual shareholders Adama and Brent. Adam and Brent do not get along and are not related to each other. Adam (80%) owner has stock basis of $87,000. Brent (20%) owner has stock basis of $20,000.
a. What is the tax result to Ryan Inc on the distribution?
b. What is the tax result (including basis of the property received) to Adam?
c. What is the tax result (including basis of the property received) to Brent?
Explanation / Answer
Ryan Inc.
Fair market value of the land
1800000
Less: Adjusted basis
400000
Profit on sale of land
1400000
Ryan Inc. is liable to pay tax on the profit of distribution of land to its individual shareholders at FMV.
Adam
Share of Adam
80%
Share of land of Adam
1440000
(1800000 x 80%)
Less: Cost basis of stock
87000
Profit of Adam
1353000
Thus, Adam is liable to pay tax on the profit of $1353000.
Adam
Share of Brent
20%
Share of land of Brent
360000
(1800000 x 80%)
Less: Cost basis of stock
20000
Profit of Brent
340000
Thus, Brent is liable to pay tax on the profit of $340000.
Ryan Inc.
Fair market value of the land
1800000
Less: Adjusted basis
400000
Profit on sale of land
1400000
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