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:

Psychological Empowerment

A state where individuals feel a sense of control over their work and perceive their job as meaningful, contributing to a sense of competence and self-determination.

Personal Fulfillment

The achievement of personal satisfaction or happiness, often through meeting one's goals, desires, or standards.

Larger Purpose

refers to an overarching goal or mission that transcends individual interests, often guiding an organization's or individual's actions and motivations.

Job Characteristic Model

A framework for analyzing and designing jobs that identifies five core job dimensions that influence worker motivation, satisfaction, and performance.