Madison owns? 100% of Omega Corporation's common stock. Omega is an accrual? basis, calendar year corporation. Madison formed the corporation six years ago by transferring $125,000 of cash in exchange for the Omega stock.? Thus, she has held the stock for six years and has a $125,000 adjusted basis in the stock.Omega?'s balance sheet at January 1 of the current year is as? follows:

In? addition,Omega has claimed $80,000 of MACRS depreciation on the machinery and $160,000 of?straight-line depreciation on the building. On January 2 of the current? year, Omega liquidates and distributes all property to Madison except that Omega retains cash to pay the accounts payable and any tax liability resulting from Omega?'s liquidation. Assume that Omega has no other taxable income or loss.

Requirement

Determine the tax consequences to Omega and Madison. Assume a 34?% corporate tax rate.

?Let's begin by determining the tax consequences for Omega.

Select the property needed to compute Omega?'s total gain or? loss, compute the gain or loss for each asset and determine the character for each gain or loss.? Then, compute Omega?'s total gain or loss and compute Omega?'s tax liability.