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Problem 1 9 - 5 9 ( L 0 . 8 , 9 ) For the last 1 1 years, Lime Corporation has owned and

Problem 19-59(L0.8,9)
For the last 11 years, Lime Corporation has owned and operated four different trades or businesses. Lime
also owns stock in several corporations that it purchased for investment purposes. The stock in Lime
Corporation is held equally by Sultan, an individual, and by Turquoise Corporation. Both Sultan and
Turquoise own 1,000 shares in Lime that were purchased nine years ago at a cost of $200 per share.
Determine whether the following independent transactions qualify as partial liquidations under 302(b)(4).
In each transaction, determine the tax consequences to Lime Corporation, to Turquoise Corporation, and to
Sultan.
a. Lime Corporation sells one of its trades or businesses (basis of $500,000, fair market value of
$700,000) and distributes the proceeds equally to Sultan and Turquoise Corporation in redemption of 250
shares from each shareholder. Lime Corporation has E & P of $2,100,000 as of the date of the distribution.
The redemption will qualify as a partial liquidation as to
recognized gain vv of $,x and Turquoise has dividend income of $
x.
Lime Corporation will have a recognized , of $,x on the sale of the trade or
business.
b. Lime Corporation distributes the stock investments (basis of $425,000, fair market value of $700,000)
it holds in other corporations to Sultan and Turquoise Corporation equally in redemption of 250 shares
from each shareholder. Lime Corporation has E & P of $2,100,000 as of the date of the distribution.
The redemption will qualify as a partial liquidation as to neither Sultan nor Turquoise . As a
result Sultan has dividend income not of
x and Turquoise has
dividend income of $
x.
Lime Corporation will have a recognized gain of $
x on the distribution of the
stock.
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