1. Washington Corporation is a C corporation whose 500 shares are owned by two shareholders, A and B. A and B are individuals and unrelated to one another.

 

                         Shares                  Adjusted Basis                                   

        A                300                         $175,000

        B                200                           150,000

 

Washington Corporation has the following assets, and no liabilities. The land and securities have been held for longer than a year.

                                                        Adjust Basis            FMV                 

        Cash                                      $100,000              $100,000

        Inventory                                25,000                  75,000

        Land                                        115,000                 210,000

        Securities                             110,000                   85,000

        Goodwill                                            0                   30,000

                                                        $350,000              $500,000

 

Washington Corporation adopts a plan of complete liquidation and sells all its assets (other than the cash) to Montana Corporation for $400,000 cash. It distributes the after-tax proceeds to its shareholders in proportion to their stock holdings.

 

1. What is the nature and amount of gain recognized by Washington Corporation, and what is the resulting corporate level tax?
2. What is the amount of cash distributed to A and B in the liquidation, and what is the gain for each shareholder?