Question

3. In year 3, the corporation liquidates their operations and the following information is provided Accumulated E and P 150,000 Fair Market value of building $550,000 Basis of stock: Jill $550,000, John 500,000, Paul 27,500 The distribution is as follows: Jill receives $525,000, Paul receives $50,000 and John receives the building in a total liquidation process. 12. What are the tax ramifications to J and J Corporation

Answer 1

Answer:

Shareholders Stock Held         % to Total Stock  

Jill                    $500,000                48.66%  

John                $500,000                 48.66%  

Paul                 $27,500                    2.68%  

Total Stock     $1,027,500             100.00%

Total Distribution

Jill           $525,000

John       $550,000

Paul        $50,000

Total       $1,125,000

Tax Ramifications to J and J Corporation

Shareholder Base                                 $1,027,500

Distribution                                            $1,125,000

Capital Loss to J and J Corporation   $97,500

Since distribution to shareholders was more than the contributions by shareholders, J and J Corporation will bear the Capital Loss as a result of such distribution.