Corporation W onws 100 of the common stock of Corporation Z

Corporation W onws 100% of the common stock of Corporation Z with a basis of $300. Z owns a rental building (its only assets) with a gross fair market value of $3,000, subject to a non-recourse mortgage of $1,200. Z\'s adjusted basis for this building is $900. Z has $600 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Z and W do not report on a consolidated basis. Z distributes the building to W in complete liquidation and W sells the building to Corparation V for $1,800 cash, subject to the debt.

New assumption: same facts as above, except that W owes Z additionally $1,200

a W has forgiveness of indebtedness income on the liquidation

b Section 332 does not apply.

c Section 332 applies and W recognizes no income

d None of the above

Which one is the correct answer?

Solution

c) Section 332 applies and W Recognize no Income is correct Answer.

Explanation:-

As per Section 332, Gain or Loss Shall no be recognized on the receipt by a corporation of Property distributed in complete lliquidation of other company