ACCT 540

Corporate Liquidation Problem

PART A: Newco is owned 100% by Jeff Williams. Jeffs tax basis in his Newco shares is 2,200,000.

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

Asset	FMV	Tax Basis
Cash	200,000	200,000
Equipment	1,300,000	100,000
Inventory	800,000	600,000
Land	400,000	200,000
Building	4,200,000	2,300,000
Goodwill	1,000,000	-0-
Totals	7,900,000	3,400,000

REQUIRED:

What is the tax effect of a liquidation to Newco?

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:

What is the tax effect of a liquidation to Newco?

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 $2,000,000. Answer the same questions.