Indigo Has a Basis of $1 Million in the Stock

question 19

Multiple Choice

Indigo has a basis of $1 million in the stock of Owl Corporation, a subsidiary in which it owns 100% of all classes of stock. Indigo purchased the stock in Owl 10 years ago. In the current year, Indigo liquidates Owl and acquires assets worth $1.2 million. At the time of its liquidation, Owl Corporation had a basis of $800,000 in the assets and E & P of $500,000. Which of the following statements is correct with respect to the liquidation?

• A) Owl recognizes a gain of $400,000.
• B) Indigo has an $800,000 basis in the assets.
• C) Owl's E & P of $500,000 is eliminated.
• D) Indigo recognizes a gain of $200,000.
• E) None of the above.

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