Carly Owns 25% of Base Corporation's Single Class of Stock

question 46

Multiple Choice

Carly owns 25% of Base Corporation's single class of stock and Premier Corporation owns the remaining 75%. Carly's basis in the Base stock is $200,000 and Premier Corporation's basis in the Base stock is $600,000. Carly receives property with a $175,000 adjusted basis and a $250,000 FMV and Premier Corporation receives property with a $600,000 adjusted basis and a $750,000 FMV in complete liquidation of Base Corporation. All of Base's cash is used to pay its liabilities. Which of following statements is correct concerning the tax effects of the liquidation?

• A)Neither Carly nor Premier Corporation will recognize a gain.
• B)Carly will recognize some gain but Premier Corporation will not recognize any gain.
• C)Both Carly and Premier will recognize some gain.
• D)Carly will not recognize any gain but Premier will recognize some gain.

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Definitions:

Guarantee

A formal promise or assurance, often provided by a third party, that certain conditions or obligations will be met.

RUPA

The Revised Uniform Partnership Act (RUPA) is a legal guideline adopted by several states to govern the formation, operation, and dissolution of partnerships.

Dissociation

The process by which a member's involvement in an entity's activities is terminated, either voluntarily or involuntarily.

Firm

A business organization, such as a partnership or corporation, engaged in commercial, industrial, or professional activities.