IRC 302(b)(2) states that redemption will be treated as an exchange if the redemption is “a disproportionate distribution” The determination of whether a redemption qualifies under this provision is:

a. very subjective.

b. very objective. 

Stone Corp. purchased 100% of the stock of Pearl Corp. in 1984 for $300,000. Early this year, Pearl was liquidated. Stone Corp. received all of Pearl’s assets, which had a basis to Pearl Corp. of $420,000 and an FMV of $440,000. Assume the requirements of §332 were satisfied. Will Stone Corp. recognize any gain as a result of the liquidation? 

a. yes. 

b. no. 

Refer to question #11 above. Will Pearl Corp. recognize any gain as a result of the liquidation?

a. yes.

b. no. 

Refer to question #11 above. 

The gain potential in the stock owned by Stone Corporation prior to the liquidation is: 

a. deferred until a later time.

b. eliminated, i.e., will never be recognized.