Final answer:
To avoid recognizing any gain or loss upon liquidation, a corporation must hold 80% or more of the subsidiary. This substantial ownership allows for tax-free reorganization and aligns with benefits such as limited shareholder liability and easier access to finance.
Step-by-step explanation:
In order to avoid recognizing any gain or loss on the liquidation of a subsidiary, a corporation needs to hold 80% or more of the liquidating corporation.
This is essential because having such a significant ownership allows the parent company to utilize the provisions of the Internal Revenue Code that specify a tax-free reorganization. Moreover, holding a substantial percentage of the subsidiary aligns with the benefits of corporate structure, such as shareholder liability being limited to their investment and creating an environment that's easier to raise or borrow money for business expansion.
By owning 80% or more, the parent company has a controlling interest, making it possible to manage and dictate the policies of the subsidiary, which can include liquidation processes. Furthermore, the ability to finance growth through selling stock is facilitated when there is clarity and simplicity in the corporate structure and ownership, which is more straightforward to achieve with a high percentage ownership, as opposed to a fragmented shareholder base.