Compare the liquidation of a C Corporation vs. a Partnership. Both entities distribute appreciated property to their owners. Which statement is true?

Answer options:

C Corp recognizes gain; Partnership generally does not.

Both recognize gain.

Neither recognizes gain.

Partnership recognizes gain; C Corp does not.

How to approach this question

C Corp = Double Tax (Gain inside, Gain outside). Partnership = Single Tax (No gain inside usually, basis adjustment outside).

Full Answer

A.C Corp recognizes gain; Partnership generally does not.✓ Correct

IRC §336 (C Corp) requires gain recognition on distribution of appreciated property. IRC §731 (Partnership) generally provides for nonrecognition of gain on distribution of property.

Common mistakes

Assuming flow-through treatment for C Corps.

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