Parent Corporation owns 100% of the stock of Subsidiary Corporation. The adjusted basis of its stock investment is $100,000. A plan of liquidation is adopted. Subsidiary distributes to Parent assets with a $325,000 FMV and a $275,000 adjusted basis. Subsidiary also distributes liabilities in the amount of $40,000. Subsidiary has a $150,000 E&P balance.a) What is the amount and character of Subsidiary Corporation's recognized gain or loss on the distribution?b) What is the amount and character of Parent Corporation's recognized gain or loss on the redemption of the Subsidiary stock?c) What basis does Parent take in the assets?d) What happens to parent Corporation's basis in the Subsidiary stock and to Subsidiary's tax attributes?
What will be an ideal response?
| a) | $325,000 - $275,000 = $50,000 realized gain, but no recognized gain (Sec. 337). |
| b) | $325,000 - $40,000 liabilities - $100,000 = $185,000 realized gain, but no recognized gain (Sec. |
| c) | $275,000 carryover basis. |
| d) | The basis for the Parent stock disappears and is replaced by the basis of each of the individual |
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