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 21% corporate tax rate.

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Assets Basis FMV $ 400,000 50,000 300,000 200,000 500,000 $ 400,000 125,000 350,000 275,000 750,000 $1,900,000 Cash Marketable securities Inventory Equipment Building Total $1,450,000