Owens Corporation is owned 75% by Briana and 25% by Stephan. Briana and Stephan
ID: 2544545 • Letter: O
Question
Owens Corporation is owned 75% by Briana and 25% by Stephan. Briana and Stephan have $125,000 and $50,000 bases in their stock, respectively. Owens Corporation adopts a plan of liquidation on March 1. On April 12, Briana receives the following property as a liquidating distribution: cash of $30,000; land, $150,000 FMV; and 150 shares of York Corporation stock, $30,000 FMV. The land is subject to a $20,000 mortgage. On the same date, Stephan receives $10,000 FMV of York stock (50 shares) and cash of $45,000 as a liquidating distribution. The land has a basis of $50,000 and the stock has a basis of $70,000 in Owens Corporation's hands. Both are capital assets to Owens Corporation and have been held for a number of years. Fully explain your answers.
a) What is the amount and character of Owens Corporation's recognized gain or loss on the liquidating distributions?
b) What are the amounts and characters of Briana and Stephan's recognized gains or losses?
c) What are the bases of the land and stock to Briana and Stephan?
Explanation / Answer
Answer
A.
Land: ($105,000 net FMV + $20,000 liabilities) - $50,000 = $75,000 long-term capital gain.
Stock: $40,000 - $70,000 = $30,000 realized long-term capital loss.
Owens recognizes the entire loss because the stock is not disqualified property and is distributed in the same proportion (25% for Stephan and 75% for Briana ) as Markand Sherri's stockholdings.
B.
Briana ($30,000 + $125,000 + $30,000 - $15,000 liabilities) - $125,000 =$45,000 capital gain.
Stephan : ($10,000 + $45,000) - $50,000 = $5,000 capital gain.
C.
Briana :
Land, $125,000; and stock, $30,000.
Stephan :stock, $10,000
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