[windforce]

Hi, I super confused on Corp vs Partnership Recognized/Realized Gain and Loss.

I have an example, could you please solve with explanation? Thanks!

Knee Corp, an accrual-basis calendar C Corp, liquidated in 2012. In cancellation of all their stock, each shareholder received a liquidating distribution of $5,000 cash and land with a tax basis of $4,000 and a fair marker value of $8,750. Before the distribution, each shareholder’s tax basis was $7,000.

1. What amount of gain should each shareholder recognize? What amount of gain should each shareholder realize? (Liquidating)

2. What if it is distribution. What amount of gain should each shareholder recognize? What amount of gain should each shareholder realize? (Non-liquidating)

3. What if Knee is a partnership. What amount of gain should each shareholder recognize? What amount of gain should each shareholder realize? (Liquidating)

4. What if Knee is a partnership. What amount of gain should each shareholder recognize? What amount of gain should each shareholder realize? (Non-Liquidating)

BEC - 67, 76 (4/30/2012)(PASSED!!!)
AUD - 57 (5/29/2012)(Rematch in August!!!)
FAR - NTS (7/15/2012)
REG - NTS (8/31/2012)

[CPA journey]

First let us do the partnership

liquidating distribution

partner basis = 7000

less cash dist= 5000

remaining basis = 2000

land basis = 2000 since this is liquidating dist and distributed property will always be equal to partner basis therefore no gain either to partner or partnership

non liquidating distribution

partner basis = 7000 less cash dist 5000 = 2000 in the non liquidating the property dist will be lesser of property basis or partner basis and hence the property basis = 2000 so no gain here as well

now let us see the corporate dist

liquidating dist

corporate recgonize gain on appreciated property dist so the gain = 8750 fmv minus 4000 basis = 4750

shareholder gain = 7000 original basis reduced by cash 5000 = 2000 and the basis recevied = fmv 8750 so the excess = capital gain = 6750

non liquidating dist

it depends on current earnings and profit and accumulated earnings and profits no information is given in the problem about current earning and accumulated earnings , we can assume that it made a profit of 4750 on distribution of appreciated profit so that will be the current E&P

so the shareholder basis is first reduced by cash that leaves the basis of 2000 and 2000 represents as dividend income and the excess would be gain = 6750 ordinary gain

I hope this makes sense.

If this is S corporation how do we treat the distribution?

The shareholder gain? corporation gain? shareholder basis on the property received?

I

CPA EXAM - DONE - JULY 2014
ETHICS PENDING - WORK EXPERIENCE- PENDING

[windforce]

wow RV! thank you so much!!!! <3

BEC - 67, 76 (4/30/2012)(PASSED!!!)
AUD - 57 (5/29/2012)(Rematch in August!!!)
FAR - NTS (7/15/2012)
REG - NTS (8/31/2012)

[Anonymous]

thank you as well, RV!!

[Author]

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