Question

Corporate Tax 2020 laws - Please show all work

a)   Nader Corp (C corp) owns 85% of Evans Corp (C corp). Nader’s stock basis in Evans is $1,500,000.

b)   George owns 15% of Evans Corp. George’s basis in Evans is $60,000.

c)   Evans Corp adopts a plan of liquidation. Evans distributes equipment FMV $2,200,000 basis $1,800,000 to Nader. Evans distributes land FMV $400,000 basis $300,000 to George.

1. Nader’s taxable gain on liquidation is __________________________.

2. Evans’ taxable gain on distribution to Nader is ______________________.

3. Nader’s basis in the equipment is ___________________.

4. George’s taxable gain on liquidation is ____________________.

5. Evans’ taxable gain on distribution to George is __________________.

Answer 1

Evans corp is owned by Nader & George.

Nader owns 85 % & George owns 15 % .

When a liquidator is making a distribution to shareholders, they needto consider whether a distribution of funds is income or capital in nature.The liquidator makes this allocation based on the records maintained by the company.

Capital Gain would arise for the shareholders if the capital proceeds from the cancellation of the shares exceed the cost base of the shares.

In the given case cost of the shares are as follows :

Nader's = $ 15,00,000

George's = $ 60,000

1.) Nader Taxable Gain on liquidation

= Cost of the Equipment - Cost of the Shares

= $ 18,00,000 - $ $ 15,00,000

= $ 3,00,000

2.) Evan's taxable gain on distribution to nader

= FMV - Cost of the Equipment

= $ 22,00,000 - $ 18,00,000

= $ 4,00,000

3.) Nader's basis in the equipment is his cost of shares ie $ 15,00,000

4.) George Taxable Gain on liquidation

= Cost of the Equipment - Cost of the Shares

= $ 3,00,000 - $ 60,000

= $ 2,40,000

5.) Evan's taxable gain on distribution to George

= FMV - Cost of the Equipment

= $ 4,00,000 - $ 3,00,000

= $ 1,00,000