Lake Corporation Distributes a Building Used in Its Business to Sandy

question 25

Essay

Lake Corporation distributes a building used in its business to Sandy in exchange for all of her Lake stock. Sandy's basis in her stock is $30,000 and the property she receives has a $90,000 FMV. As part of the distribution, Sandy assumes a liability associated with the property of $65,000. The property's basis prior to the liquidating distribution was $25,000. What are the tax consequences of the distribution to Sandy? To Lake Corporation?

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Definitions:

Maximize Utility

The process or goal of obtaining the highest level of satisfaction or benefit possible from available resources or choices.

Households

Economic units consisting of all persons who occupy a housing unit, including single families, individuals living alone or with others, but who make joint financial decisions.

Maximize Wealth

The process or strategy aimed at increasing the net value of assets owned by an individual or corporation.

Opportunity Cost

The worth of the best option given up by choosing to follow a specific course of action.