Question

Brown Corporation purchased 85% of the stock of Green Corporation five years ago for $850,000. In the current year, Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of $700,000 (fair market value of $1.1 million). Brown Corporation will have a basis in the assets of $850,000, the same as Brown's basis in its Green stock.

True or False

Answer 1

The statement is incorrect as Brown Corporation's basis in the liquidated assets of Green Corporation would generally be their fair market value, not the same as Brown's basis in its Green stock.

Step-by-step explanation:

The statement provided is false. When Brown Corporation liquidates Green Corporation and acquires its assets, the basis of those assets in Brown's hands should be their fair market value at the time of the liquidation, unless specific tax rules provide otherwise. In this scenario, the fair market value of the assets acquired is $1.1 million, which would typically be Brown Corporation's basis in them post-liquidation.

However, tax regulations can be complex, and there could be situations under consolidated return rules or Section 334 of the Internal Revenue Code where Brown's basis in the Green stock is relevant to the basis of the assets post-liquidation.

It is essential to consult the relevant tax laws and regulations or a tax professional to confirm the correct basis following such a transaction.