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:

Impossible Events

Occurrences that defy the laws of nature, logic, or reality, often found in fiction or theoretical discussions.

Hand Gestures

Movements of the hands and arms that are used to communicate expressions, emotions, or information without verbal speech.

Object Permanence

The understanding that objects continue to exist even when they cannot be seen, heard, or otherwise sensed, which is an important milestone in cognitive development.

Schema

In cognitive psychology, a pattern of thought or behavior that organizes categories of information and the relationships among them.