Corporation W onws 100% of the common stock of Corporation Z with a basis of $30
ID: 2452814 • 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.
New assumption: Same facts as above, except that W sells the Z stock to V for $1,800 cash instead of sellling the building following a liquidation.
a V should make a Section 338 election as a normal procedure in order to obtain a cost bais in the Z assets.
b V should not make a Section 338 election because of the tax under 338 on the hypothetical sale unless Z has losses.
c V should make a 338 election if it si an S Corporation
d None of the above.
Which is the correct answer and why?
Explanation / Answer
b V should not make a Section 338 election because of the tax under 338 on the hypothetical sale unless Z has losses.
yes, section 338 will not apply, as this belongs to the hypothetical sale ,as the building is not owned by the S corporation, s corporation has got it by liquidation , so, section 338 will not apply here, it has to be recognised has the hypothetical sale.