Parent Corporation Owns 100% of the Stock of Subsidiary Corporation

question 30

Essay

Parent Corporation owns 100% of the stock of Subsidiary Corporation. The adjusted basis of its stock investment is $100,000. A plan of liquidation is adopted. Subsidiary distributes to Parent assets with a $325,000 FMV and a $275,000 adjusted basis. Subsidiary also distributes liabilities in the amount of $40,000. Subsidiary has a $150,000 E&P balance.
a)What is the amount and character of Subsidiary Corporation's recognized gain or loss on the distribution?
b)What is the amount and character of Parent Corporation's recognized gain or loss on the redemption of the Subsidiary stock?
c)What basis does Parent take in the assets?
d)What happens to parent Corporation's basis in the Subsidiary stock and to Subsidiary's tax attributes?

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Definitions:

Electrically Charged

A condition of having an imbalance of electric charge, either positive or negative.

Resting Potential

The electrical charge across the neuronal membrane when the neuron is not actively transmitting signals.

Refractory Period

The time right after a stimulus when a nerve or muscle cannot respond to additional stimulation.

Positive Charge

An electrical charge possessed by protons, which is opposite in sign to the charge carried by electrons.