Dove Corporation (E & P of $800,000) has 1,000 shares of stock outstanding. The shares are owned as follows: Julia, 600 shares; Maxine ( Julia’s sister), 300 shares; and Janine ( Julia’s daughter), 100 shares. Dove Corporation owns land (basis of $300,000, fair market value of $260,000) that it purchased as an investment seven years ago. Dove distributes the land to Julia in exchange for all of her shares in the corporation. Julia had a basis of $275,000 in the shares. What are the tax consequences for both Dove Corporation and Julia if the distribution is:
A qualifying stock redemption?
A liquidating distribution?
Problem 60
Assume in Problem 59 that the land had a fair market value of $630,000 on the date of its transfer to Pink Corporation. On the date of the liquidation, the land’s fair market value has decreased to $500,000. How would your answers to Problem 59 change if:
All of the land is distributed to Maria?
All of the land is distributed to Paul?
The land is distributed 85% to Maria and 15% to Paul?
The land is distributed 50% to Maria and 50% to Paul?
The land is sold and the proceeds of $500,000 are distributed proportionately to Maria and to Paul?
For problem 60 here is problem 59
Last year Pink Corporation acquired land and securities in a § 351 tax-free exchange. On the date of the transfer, the land had a basis of $720,000 and a fair market value of $1,000,000 and the securities had a basis of $110,000 and a fair market value of $250,000. Pink Corporation has two shareholders, Maria and Paul, unrelated individuals. Maria owns 85% of the stock in Pink Corporation, and Paul owns 15%. The corporation adopts a plan of liquidation in the current year. On this date, the value of the land has decreased to $500,000. What is the effect of each of the following on Pink Corporation? Which option should be selected?
Distribute all of the land to Maria.
Distribute all of the land to Paul.
Distribute 85% of the land to Maria and 15% to Paul.
Distribute 50% of the land to Maria and 50% to Paul.
Sell the land and distribute the proceeds of $500,000 proportionately to Maria and to Paul.