41. LO.7 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 of Lime is held equally by Sultan, an individual, and by Turquoise Corporation. Sultan and Turquoise each own 1,000 shares in Lime, purchased 9 years ago at a cost of $200 per share.

Determine whether either of the following independent transactions qualifies as partial liquidations under § 302(b)(4). In each transaction, determine the tax consequences to Lime, to Turquoise, and to Sultan. Lime holds E & P of $2,100,000 on the date of the distribution. Lime redeems 250 shares from each shareholder.

a. Lime sells one of its business lines (basis $500,000, fair market value $700,000)

and distributes the proceeds equally to Sultan and Turquoise.

b. Lime equally distributes stock investments (basis $425,000, fair market value

$700,000) that it holds in other corporations to Sultan and Turquoise.