Marsha owns 100% of Gamma Corporation€™s common stock. Gamma is an accrual basis calendar year corporation. Marsha formed the corporation six years ago by transferring $250,000 of cash in exchange for the Gamma stock. Thus, she has held the stock for six years and has a $250,000 adjusted basis in the stock. Gamma€™s balance sheet at January 1 of the current year is as follows:

Gamma has held the marketable securities for two years. In addition, Gamma has claimed $60,000 of MACRS depreciation on the machinery and $90,000 of straight-line depreciation on the building. On January 2 of the current year, Gamma liquidates and distributes all property to Marsha except that Gamma retains cash to pay the accounts payable and any tax liability resulting from Gamma€™s liquidation. Assume that Gamma has no other taxable income or loss. Determine the tax consequences to Gamma and Marsha. Assume a 34% corporate tax rate.

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Assets Basis FMV Cash S 400,000 S 400,000 Marketable securities 50,000 125,000 350,000 275,000 300,000 Inventory Equipment Building 200,000 500,000 750,000 Total S1,450,000 Liabilities and Equity Accounts payable S 175,000 S 175,000 Common stock 250,000 1,725,000 Retained earnings (and E&P) Total $1,450,000 $1,900,000