Tax Study Problem

LESSON 8

COMPLETE LIQUIDATIONS

8B Subsidiary Liquidations and § 338

(1) X recognizes $700 gain, pays $245 tax, and distributes $355 to Y, whose basis in (and lurking gain on) X stock disappears; Y takes the cash without recognition of gain or loss under § 332. Y inherits X’s tax attributes, including particularly E&P (augmented by the building sale gain) under § 381(a)(1). Z takes a $1,000 basis in the building. B&E ¶ 10.21.

Consider noting how the purchase of the assets with a certain type of debt could run afoul of § 279 if Z were extraordinarily ill-advised. B&E ¶ 4.26.