On May 2, 2015, Barney formed ABC Corporation contributing $200,000 in exchange for100 percent of its stock. The corporation uses the funds to purchase a parcel of land. ByApril 14, 2020, the land had appreciated in value to $1,550,000.What are the tax consequences to ABC and Barney if the corporation sells the land and thenliquidates?On May 2, 2014, Barney formed ABC Corporation contributing $200,000 in exchange for100 percent of its stock. The corporation uses the funds to purchase a parcel of land. ByApril 14, 2020, the land had appreciated in value to $1,550,000. On December 12, 2017, hecontributed Property #1 valued at $700,000 to ABC, receiving back additional ABC stock.Barney and ABC agreed to reduce the basis of Barney's stock in lieu of reducing ABC'sbasis in Property #1. Barney had purchased Property #1 in 2014 for $1,750,000.What are the tax consequences to ABC and Barney if, on April 14, 2020, thesells the land for $1,550,000 and Property #1 for $325,000 and then liquidates?corporation

Answered: What are the tax consequences to ABC…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

On May 2, 2015, Barney formed ABC Corporation contributing $200,000 in exchange for
100 percent of its stock. The corporation uses the funds to purchase a parcel of land. By
April 14, 2020, the land had appreciated in value to $1,550,000.
What are the tax consequences to ABC and Barney if the corporation sells the land and then
liquidates?
On May 2, 2014, Barney formed ABC Corporation contributing $200,000 in exchange for
100 percent of its stock. The corporation uses the funds to purchase a parcel of land. By
April 14, 2020, the land had appreciated in value to $1,550,000. On December 12, 2017, he
contributed Property #1 valued at $700,000 to ABC, receiving back additional ABC stock.
Barney and ABC agreed to reduce the basis of Barney's stock in lieu of reducing ABC's
basis in Property #1. Barney had purchased Property #1 in 2014 for $1,750,000.
What are the tax consequences to ABC and Barney if, on April 14, 2020, the
sells the land for $1,550,000 and Property #1 for $325,000 and then liquidates?
corporation

Expert Solution

Step 1

First scenario:

If ABC Corporation sells the land for $1,550,000 and then liquidates, it will recognize a gain of $1,350,000 ($1,550,000 sale price - $200,000 cost basis). This gain will be taxed at the corporate level as capital gains tax. The remaining assets of the corporation will be distributed to Barney, who will receive a liquidating distribution in the amount of $1,550,000. Since Barney's basis in his stock is $200,000, he will recognize a gain of $1,350,000 ($1,550,000 liquidation distribution - $200,000 stock basis). This gain will be taxed at the individual level as long-term capital gains tax.