Assumptions:

X owns a rental building (its only asset) with a gross FMV of $1,000, subject to a nonrecourse mortgage of $400. Xs adjusted basis for this building is $300. A owns all of of Xs stock, with a total basis of $100. X has $200 of E&P. X is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by X on $700 gain is $250 and on $600 gain is $200

Determine the amounts and character of realized and recognized gain or loss to all parties, the time of recognition, and the transferees basis in any property received in kind.

3) A sells the stock in X to B for 600 in cash. B promptly liquidates X to get direct ownership of, and a 1,000 basis in the building. Was B wise to pay 600? Could B obtain a better tax result by electing S corporation status for X before liquidating X?