Corporation W onws 100% of the common stock of Corporation Z with a basis of $30
ID: 2452812 • Letter: C
Question
Corporation W onws 100% of the common stock of Corporation Z with a basis of $300. Z owns a rental building (its only assets) with a gross fair market value of $3,000, subject to a non-recourse mortgage of $1,200. Z's adjusted basis for this building is $900. Z has $600 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Z and W do not report on a consolidated basis. Z distributes the building to W in complete liquidation and W sells the building to Corparation V for $1,800 cash, subject to the debt.
Assumption: same facts as above, except that the liability on the building is $3,300
a W recognizes no gain or loss on the liquidation under Section 332.
b Z recognizes $2,400 gain under Section 336
c Neither of the above
d Both A and B of the above
Which one is the correct answer and why?
Explanation / Answer
Option d is correct as u/s 332 No gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation.