P, Inc. (P) owns 90 percent of the outstanding stock of S, Inc. (S). Individual (I) owns the remaining 10 percent of S. Ps basis in its S stock is $3,000. Is basis in his S stock is $200. S has accumulated earnings and profits of $2,000 and the following assets:

Asset Adjusted Basis Fair Market Value

Land $3,000 $8,000

Equipment 2,500 1,000

Inventory 100 1,000

Questions: S wishes to liquidate and distribute all of its assets to its shareholders. What are the tax consequences to P, S and I in the following alternative situations?

a) S distributes the inventory to I and other assets to P.

b) S distributes the equipment to I and the other assets to P. How might S improve this result?

c) What result in (b), above, if Ps basis in its S stock were $30,000 and S had a $30,000 basis in the land?

d) Is (c), above, a situation where P might wish to avoid the application of 332? Why? How might this be accomplished? Consider in this regard the 332 qualification requirements and how a parent might assure that they are not met.