QUESTION 17

1. Corporation W owns 100% of the common stock of Corporation Z with a basis of $300. Z owns a rental building (its only asset) with a gross fair market value of $3,000, subject to a non-recourse mortgage of $1,200. Zs adjusted basis for this building is $900. Z has $600 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Z and W do not report on a consolidated basis. Z distributes the building to W in complete liquidation and W sells the building to Corporation V for $1,800 cash, subject to the debt. W owes Z additionally $1,200.

   Same facts as above, and W owes Z additionally $1,200.

   	a.	W has forgiveness of indebtedness income on the liquidation.
   	b.	Section 332 does not apply.
   	c.	Section 332 applies and W recognizes no income
   	d.	None of the above.

2 points

QUESTION 18

1. Corporation W owns 100% of the common stock of Corporation Z with a basis of $300. Z owns a rental building (its only asset) with a gross fair market value of $3,000, subject to a non-recourse mortgage of $1,200. Zs adjusted basis for this building is $900. Z has $600 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Z and W do not report on a consolidated basis. Z distributes the building to W in complete liquidation and W sells the building to Corporation V for $1,800 cash, subject to the debt.

   Same facts as above, except that W sells the Z stock to V for $1,800 cash instead of selling the building following a liquidation.

   	a.	V should make a Section 338 election as a normal procedure in order to obtain a cost basis in the Z assets.
   	b.	V should make a Section 338 election because of the tax under 338 on the hypothetical sale unless Z has losses.
   	c.	V should make a 338 election if it is an S Corporation.
   	d.	None of the above.