Charlene and Dennis Each Own 50% of Brewster Corporation and Have

question 29

Essay

Charlene and Dennis each own 50% of Brewster Corporation and have owned it for five years. The adjusted bases of their Brewster stock are $80,000 and $40,000 respectively. Brewster Corporation liquidates and distributes $60,000 to Charlene in exchange for her stock. It distributes a parcel of land with a $140,000 FMV which is subject to a $90,000 mortgage to Dennis in exchange for his stock. Dennis assumes the mortgage and also receives $10,000 in cash.
a)What is the character and amount of each shareholder's gain or loss?
b)What is each shareholder's basis in the property received in the liquidation?

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Definitions:

Corporation

A legal entity that is separate from its owners, with an independent existence that allows it to own property, enter contracts, and be liable for its actions.

General Partner

A member of a partnership who has unlimited liability and takes part in the daily operations of the business.

Taxed

Subjected to a financial charge or levy by a governmental organization in order to fund various public expenditures.

S Corporation

A close corporation whose shareholders have elected to be taxed essentially like partners are taxed under federal income tax law. Also called subchapter S corporation.