Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000. Z's adjusted basis for this building is $1,500. All of Z's stock is owned by C, whose basis for his stock in Z is $500. Z had 1,000 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by Z on $3,500 gained is $1,250 and on $3,000 gained is $1,000. Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash. Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of C's stock in the current year.

Same facts as above, except that Z adopts a plan of complete liquidation instead of selling the building to D. Z distributes the building to C "in-kind" pursuant to the plan. C then sells the building to D for $3,000 in cash with D taking subject to the mortgage of $2,000.

Same facts as above, except that Z is an S Corporation and Section 1374 does not apply.

a.

Z has $1,500 gain.

b.

C has a $2,500 gain on the distribution.

c.

C has a $1,000 ordinary loss on the distribution under Section 1244 if that section applies.

d.

C has $1,000 capital loss.

e.

None of the above.