Corporate Liquidation Problem

PART A: Newco is owned 100% by Jeff Williams. Jeff's 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:

(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:

(3)What is the tax effect of a liquidation to Newco?

(4)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.

(1)What is the tax effect of a liquidation to Newco?

(2)What is the tax effect of a liquidation to Jeff?

(3)What is the tax effect of a liquidation to Newco?

(4)What is the tax effect of a liquidation to Jeffco?