Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. FMV Adjusted basis AppreciationCash$200,000 $200,000 Building200,000 100,000 100,000 Land100,000 150,000 (50,000)Total$500,000 $450,000 $50,000 Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000.What amount of gain or loss does Mike recognize in
the complete liquidation?
What will be an ideal response?
Mike recognizes gain of $150,000 on the transfer of his stock to Pennsylvania ($200,000 ? $50,000) in complete liquidation of Pennsylvania.
Distributions in complete liquidation to individual shareholders are taxable to the shareholders.
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