Question

Packard Corporation transferred its 100 percent interest to State Company as part of a complete liquidation of the company. In the exchange, Packard received land with a fair market value of $427,500. Packard's basis in the State stock was $625,000. The land had a basis to State Company of $535,000. What amount of loss does State recognize in the exchange and what is Packard's basis in the land it receives

Answer 1

Answer:

$107,500

Explanation:

There is No loss recognized by State and a basis in the land of $535,000 to Packard.

The State does not recognize the loss of $107,500 because the liquidation is tax-deferred to Packard. Packard's basis in the land is equal to State's basis in the land.

Answer 2

Answer:

No loss or gain is recognized by State Company and Packard's basis in the land will be $535,000

Explanation:

State Company does not have to recognize any loss or gain regarding the distribution of the land. Packard's basis for the land will be equal to State's basis = $535,000.

Since the liquidation involves 100% of the company's stocks, section 332 applies. This means that no gain or loss must be recognized by State Company.