All of the outstanding stock of X Corporation is owned by Ivan (80 shares) and F
ID: 2575909 • Letter: A
Question
All of the outstanding stock of X Corporation is owned by Ivan (80 shares) and Flo (20 shares). X has no liabilities. Ivan contributed Gainacre ($100,000 adj. basis, $400,000 FMV) and Lossacre ($800,000 adj. basis, $$400,000 FMV) to X. Flo contributed $200,000 cash. Assume Lossacre is §336(d)(1) property and §362(e)(2) applied to Ivan’s contribution, but §336(d)(2) does not apply because there was no plan for X to recognize loss on that property.
(a) What result if pursuant to a plan of liquidation X distributes each of its assets to Ivan and Flo in proportion to their respective stock interests?
(b) Same as (a) except assume that §362(e)(2) applies to Ivan’s contributions to X and §336(d)(2) applies to Lossacre because there was a plan by X to recognize loss in that property.
Explanation / Answer
A Under IRC §336(a) gain or loss is recognized by a corporation upon liquidation of property as if it were sold. Therefore, X recognizes a $300,000 capital gain and a $400,000 loss (netted to $100,000 loss). IRC §336(d) does not apply because each asset is distributed pro rata and were held by more than 5 years i.e. is not “disqualified property.” B No change for the distribution of gainacre to Flo ($300,000 capital gain) §336(a). X may not recognize the $400,000 loss on the distribution of lossacre to Ivan because under §336(d)(1)(A), “no loss shall be recognized by a liquidating corporation on the distribution of any property to a related person (within the meaning of IRC section 267) if:i.such distribution is not pro rata. ORii.such property is disqualified property.