Question

In a liquidating distribution, Brown Corporation distributes land to Jacob, who owns 20% of the stock. The property has a FMV of $450,000, and Brown purchased it for $675,000 two years ago. What loss, if any, will Brown Corporation recognize with respect to the distribution of land?

A. $225,000 loss
B. $225,000 gain
C. No loss or gain
D. $450,000 loss

Answer 1

In a liquidating distribution, the loss or gain recognized by the Brown Corporation with respect to the distribution of land is determined by comparing the fair market value (FMV) of the land with its adjusted basis. The corporation will recognize a $225,000 loss in this scenario. The correct answer is Option A.

Step-by-step explanation:

In a liquidating distribution, the loss or gain recognized by the Brown Corporation with respect to the distribution of land is determined by comparing the fair market value (FMV) of the land with its adjusted basis. The corporation will recognize a loss if the FMV is less than the adjusted basis.

In this case, the land has a FMV of $450,000 and was purchased for $675,000. Since the FMV is less than the purchase price, the corporation will recognize a loss. The loss is calculated as the difference between the FMV and the adjusted basis, which is $675,000 - $450,000 = $225,000.

Therefore, the correct answer is Option A. The Brown Corporation will recognize a $225,000 loss with respect to the distribution of land.