During the Current Year, Ecru Corporation Is Liquidated and Distributes

question 36

Multiple Choice

During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of distribution, the land has a basis of $370,000, a fair market value of $550,000, and is subject to a liability of $450,000. Kena, who takes the land subject to the liability, has a basis of $50,000 in the Ecru stock. With respect to the distribution of the land, which of the following statements is correct?

• A)Kena recognizes a gain of $50,000.
• B)Ecru Corporation recognizes a gain of $80,000.
• C)Kena has a basis of $100,000 in the land.
• D)Kena has a basis of $370,000 in the land.
• E)None of the above.

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Definitions:

Tax Year

The 12-month period for which tax is calculated. It can be a calendar year or a fiscal year, depending on the taxpayer.

Depreciation Expense

A non-cash expense that reduces the value of an asset over time due to wear and tear, ageing, or obsolescence.

Schedule E

Schedule E is a form used for tax filing in the U.S. that reports income and losses from rental property, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs.

IRS Method

A term not specifically defined but often refers to the procedures, formulas, or rules established by the IRS for calculating taxes, deductions, and credits.