Bud and Lou, unrelated taxpayers, own all of Whose On, Inc.’s stock. Bud owns 60

Question

Bud and Lou, unrelated taxpayers, own all of Whose On, Inc.’s stock. Bud owns 60% and Lou 40%. One year before the complete liquidation of Whose On, Bud transfers (a) land (basis: $200,000; FMV $130,000) and (b) equipment (basis: $20,000, FMV: $100,000) to Whose On as a contribution to capital. In liquidation, Whose On distributes the land to Lou. At the time of the liquidation, the land is worth $110,000.

a. How much loss, if any, may the corporation recognize on the distribution of the land to Lou?

b. Assume that (1) the transfer of land to the corporation was made so that the corporation build a distribution center but a subsequent deterioration of economic conditions forced the corporation to liquidate and (2) the basis of the equipment at time of contribution was $ 50,000. What amount of loss may the corporation recognize on the distribution of the land to Lou?

There are two parts for this question! Please help me with both questions.

Explanation / Answer

Part a - Loss to be Recognised by corporation on distribution of Land to Lou

Value of Land at the time of liquidation = $110000

FMV = $130000

LOSS = ($130000 - $110000) = $20000

Part b - Loss to be Recognised by Corporation on distribution of Land to Lou

Loss = ($100000 - $50000) = $50000

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