ExpertMedium1 markMultiple Choice
CPA · Question 26 · Area II: Entity Tax Compliance
A C Corporation liquidates. It distributes asset X (Basis $100,000, FMV $80,000) to Shareholder A. What is the tax consequence to the corporation?
A C Corporation liquidates. It distributes asset X (Basis $100,000, FMV $80,000) to Shareholder A. What is the tax consequence to the corporation?
Answer options:
A.
No loss recognized.
B.
Recognized loss of $20,000.
C.
Recognized gain of $80,000.
D.
Loss is recognized only if Shareholder A is a related party.
How to approach this question
Distinguish between Nonliquidating (no loss allowed) and Liquidating (loss allowed) distributions. IRC §336 treats liquidation as a sale at FMV.
Full Answer
B.Recognized loss of $20,000.✓ Correct
B
IRC §336(a). Upon complete liquidation, a corporation recognizes gain or loss as if the property were sold to the distributee at its fair market value. $80,000 - $100,000 = $20,000 loss.
Common mistakes
Applying the nonliquidating distribution rule (no loss) to a liquidation.
Practice the full CPA TCP Practice Exam 3
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive is granted 1,000 Incentive Stock Options (ISOs) with an exercise price of...MediumQ02On January 1, Year 1, a corporation lends $500,000 to a shareholder interest-free. The loan is a ...MediumQ03A taxpayer has regular taxable income of $200,000 in Year 1. They claimed a standard deduction of...MediumQ04A U.S. citizen accepts a permanent assignment in France on January 1, Year 1. They are present in...MediumQ05A 12-year-old child has $5,000 of interest income and no earned income in Year 1. Assume the stan...Hard