ACCT 540

Corporate Liquidation Problem

PART A: Newco is owned 100% by Jeff Williams. Jeffs tax basis in his Newco shares is $1,300,000.

Newco has the following assets and liabilities when it proposes to liquidate.

AssetFMVTax BasisCash180,000180,000Equipment190,000-0-Inventory170,000110,000Land255,000165,000Building900,000540,000Goodwill1,200,000-0-Totals2,895,000995,000

REQUIRED:

1. What is the tax effect of a liquidation to Newco?
2. What is the tax effect of a liquidation to Jeff?

PART B: Same as Part A except Newco is owned by Jeffco, also a C corporation.

REQUIRED:

1. What is the tax effect of a liquidation to Newco?
2. What is the tax effect of a liquidation to Jeffco?

VARIATION: Same facts as in Part A and Part B except Newco has a net operating loss (NOL) of $2,200,000. Answer the same questions (both with Jeff as the owner and with Jeffco as the owner).