Newman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several years of operations, Newman decided to liquidate SP Corporation by distributing the assets to Newman and Kenny. The tax basis of Newman's shares is $9,000, and the tax basis of Kenny's shares is $4,000. SP reported the following balance sheet at the date of liquidation: Cash Accounts receivable. Stock investment Land Total assets Common stock-Newman (90%) Common stock-Kenny (10%) Total shareholder equity Required: Adjusted tax basis $ 22,000 9,000 8,200 26,000 $ 65,200 FMV $ 22,000 9,000 20,000 149,000 $ 200,000 $ 180,000 20,000 $ 200,000 a. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes $20,000 of cash to Kenny and the remaining assets to Newman. b. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes the stock investment to Kenny and the remaining assets to Newman. Assume that SP's tax rate is zero. c. What form needs to be filed with the liquidation of SP?

Newman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several years of operations, Newman decided to liquidate SP Corporation by distributing the assets to Newman and Kenny. The tax basis of Newman's shares is $9,000, and the tax basis of Kenny's shares is $4,000. SP reported the following balance sheet at the date of liquidation: Cash Accounts receivable. Stock investment Land Total assets Common stock-Newman (90%) Common stock-Kenny (10%) Total shareholder equity Required: Adjusted tax basis $ 22,000 9,000 8,200 26,000 $ 65,200 FMV $ 22,000 9,000 20,000 149,000 $ 200,000 $ 180,000 20,000 $ 200,000 a. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes $20,000 of cash to Kenny and the remaining assets to Newman. b. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes the stock investment to Kenny and the remaining assets to Newman. Assume that SP's tax rate is zero. c. What form needs to be filed with the liquidation of SP?

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter12: Corporations: Organization, Capital Structure, And Operating Rules

Section: Chapter Questions

Problem 12P

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