Jefferson Millinery Inc. (JMI) decided to liquidate its wholly owned subsidiary,

Question

Jefferson Millinery Inc. (JMI) decided to liquidate its wholly owned subsidiary, 8 Miles High Inc. (8MH). 8MH had the following tax accounting balance sheet: (Leave no answer blank. Enter zero if applicable.)

a. What amount of gain or loss does 8MH recognize in the complete liquidation?

b. What amount of gain or loss does JMI recognize in the complete liquidation?

c. What is JMI’s tax basis in the building and land after the complete liquidation?

FMV Adjusted Basis Appreciation Cash $ 265,000 $ 265,000 Building 78,000 34,500 43,500 Land 187,000 120,500 66,500 Total $ 530,000 $ 420,000 $ 110,000

Explanation / Answer

Since JMI owns 8MH, so it will not recognise any gain or loss on liquidation.

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Again 8MH will not recognize any gain or loss on complete liquidation.

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After liquidation JMI tax basis will be = $420000

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Hope that helps.

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