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 Alabama Corporation, an S corporation, liquidates this year by distributing a parcel of land to its sole shareholder, Mark Ingram. The fair market value of the parcel is $62,750, and its tax basis is $39,000. Mark’s basis in his stock is $31,750.

a. What amount of gain or loss, if any, does Alabama Corporation recognize on the distribution?

Fair market value of the parcel is $62,750
                                 - tax basis is $39,000
Gain recognized                            $23,750

b. How much gain must Mark recognize (if any) as a result of the distribution, and what is his basis in the land?

Market recognized Gain on distribution 
1st gain  $62,750 - $39,000 = $23,750

2nd  stock is $31,750 +  $23,750 = 55,500
$62,750 - 55,500 = 7,250

Total gain 1st $23,750 +  7,250 = 31,000

c. Assume the fair market value of the land is $27,500 rather than $62,750. What amount of gain or loss, if any, does Alabama Corporation recognize on the distribution?

fair market value of the parcel is $27,500 
tax basis is                                  $39,000
Loss recognised                         (11,500)

d. Assume the fair market value of the land is $27,500 rather than $62,750. How much gain must Mark recognize (if any) as a result of the distribution, and what is his basis in the land?

Market recognized Gain on distribution 
1st gain  $27,500 - $39,000 = (11,500)

2nd  stock is $31,750 +  (11,500) = 20,250
$27,500 - 20,250 = 7,250

Total gain 1st (11,500) +  7,250 = (4,250)


Currently, I am an MBA student at EIU. This blog will follow my studies in Corporate taxation

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