ExpertHard1 markMultiple Choice
CPA · Question 68 · Area V: Entity Taxation
A C Corporation distributes appreciated property to a shareholder in a complete liquidation. Which of the following statements is correct?
A C Corporation distributes appreciated property to a shareholder in a complete liquidation. Which of the following statements is correct?
Answer options:
A.
The corporation recognizes no gain or loss.
B.
The corporation recognizes gain as if the property were sold at FMV.
C.
The shareholder recognizes no gain or loss.
D.
The corporation recognizes loss but not gain.
How to approach this question
Liquidation = Double Tax. 1. Corp sells assets (Deemed Sale) -> Corp Tax. 2. Shareholder receives proceeds -> Shareholder Tax.
Full Answer
B.The corporation recognizes gain as if the property were sold at FMV.✓ Correct
B
In a complete liquidation, the corporation recognizes gain or loss as if the property were sold to the shareholder at its fair market value (IRC §336). The shareholder also recognizes gain or loss (FMV received minus stock basis).
Common mistakes
Thinking liquidation is tax-free.
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