[Topsya]

Can someone please help me to understand this?

Kneenober Corp., an accrual-basis calendar-year C corporation, liquidated in 2011. In cancellation of all their Kneenober stock, each Kneenober shareholder received a liquidating distribution of $5,000 cash and land with a tax basis of $4,000 and a fair market value of $8,750. Before the distribution, each shareholder’s tax basis in Kneenober stock was $7,000. What amount of gain should each Kneenober shareholder recognize on the liquidating distribution?

A $0

B $1,750

C $2,000

D $6,750

The correct answer is D: $13,750-$7,000 = $6,750

But doesn’t the corporation need to recognize gain on distribution of property first?

$8,750 – $4,000 = $4,750. Therefore, liquidating distribution to the extend of $4,750 will be a dividend?

The other &7,000 will decrease the basis to zero.

And then $2,000 will be a capital gain.

what do you think?

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Only Reg Left]

Cash is treated as distributed first. And you must zero out the basis and use what's left over as the sh's basis in the land.

7,000 – 5,000 = 2,000

2,000 – 8,750 = (6,750) capital gain.

That answer is right.

And because the corp liquidated, the sh treats the distributed property as sold, which is why you use the FMV.

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[Only Reg Left]

Cash is treated as distributed first. And you must zero out the basis and use what's left over as the sh's basis in the land.

7,000 – 5,000 = 2,000

2,000 – 8,750 = (6,750) capital gain.

That answer is right.

And because the corp liquidated, the sh treats the distributed property as sold, which is why you use the FMV.

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[Topsya]

“And because the corp liquidated, the sh treats the distributed property as sold, which is why you use the FMV.”

Right. And when the property is treated AS SOLD, corporation recognizes GAIN which is the difference between FMV and basis

Why wasn't it recognized here??

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

“And because the corp liquidated, the sh treats the distributed property as sold, which is why you use the FMV.”

Right. And when the property is treated AS SOLD, corporation recognizes GAIN which is the difference between FMV and basis

Why wasn't it recognized here??

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[hzhao0802]

@Topsya,

I agree with you. Corp's E&P should increase by the land distribution which results in E&P increases by $4750

FAR - 88
REG - 88
AUD - 99
BEC - 87

[hzhao0802]

@Topsya,

I agree with you. Corp's E&P should increase by the land distribution which results in E&P increases by $4750

FAR - 88
REG - 88
AUD - 99
BEC - 87

[Topsya]

@hzhao0802 – RIGHT?

and then the answer would be $2,000

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

@hzhao0802 – RIGHT?

and then the answer would be $2,000

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[hzhao0802]

I think so….

FAR - 88
REG - 88
AUD - 99
BEC - 87

[hzhao0802]

I think so….

FAR - 88
REG - 88
AUD - 99
BEC - 87

[Only Reg Left]

You have to zero out your basis in a liquidation. The corp DOES recognize a gain on its final tax return, but that has no effect on the sh's basis.

The corp is distributing its assets instead of selling them outright and distributing the proceeds to the sh. These assets are capital in nature and must be treated as if they were sold by both the corp and sh.

If it was a non-liquidating distribution then the $4,750 would be ordinary dividend and $2,000 would be capital.

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[Only Reg Left]

You have to zero out your basis in a liquidation. The corp DOES recognize a gain on its final tax return, but that has no effect on the sh's basis.

The corp is distributing its assets instead of selling them outright and distributing the proceeds to the sh. These assets are capital in nature and must be treated as if they were sold by both the corp and sh.

If it was a non-liquidating distribution then the $4,750 would be ordinary dividend and $2,000 would be capital.

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[Topsya]

Becker says:

CORPORATE LIQUIDATION

CORPORATION DISTRIBUTES ASSETS TO SHAREHOLDERS

The result of this transaction is:

1. Corporation recognizes gain or loss as if it sold the assets for the FMV

AND NOW IM CONFUSED!!!!!!!????

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

Becker says:

CORPORATE LIQUIDATION

CORPORATION DISTRIBUTES ASSETS TO SHAREHOLDERS

The result of this transaction is:

1. Corporation recognizes gain or loss as if it sold the assets for the FMV

AND NOW IM CONFUSED!!!!!!!????

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Only Reg Left]

Are you referring to Becker book or Becker MCQ?

Like I mentioned earlier:

1) Corp recognizes gain on the distribution (FMV-Book)

2) SH recognizes gain on distribution (FMV-Basis)

In a liquidation, you have to zero your basis. So whatever's left over after the cash distribution is the basis in the land (to get it to zero)

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[Author]

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