Final answer:
The assertion that for both liquidating and nonliquidating distributions, a shareholder's basis in the property received is its fair market value, is false. In nonliquidating distributions, the basis is the fair market value, whereas in liquidating distributions, it depends on the shareholder's adjusted basis in the stock.
Step-by-step explanation:
The statement accurately distinguishes between nonliquidating distributions and liquidating distributions in the context of taxation and shareholder basis. In nonliquidating distributions, a shareholder typically establishes a basis in the distributed property equal to its fair market value at the time of distribution. This fair market value serves as the starting point for the shareholder's potential future gains or losses when they sell or dispose of the distributed property.
Conversely, in the case of liquidating distributions, the calculation of the shareholder's basis in the property received is more complex. The basis is not determined by the fair market value of the distributed property but is instead based on the shareholder's adjusted basis in the corporation's stock immediately before the liquidation. This adjusted basis is then adjusted for any cash received in the liquidation and any recognized gain or loss associated with the distribution.
In essence, for nonliquidating distributions, the fair market value governs the basis, providing a straightforward approach. In contrast, liquidating distributions involve a more intricate calculation that considers the shareholder's adjusted basis in the corporation's stock and adjustments for cash received and any recognized gains or losses. Understanding these distinctions is crucial for shareholders and tax practitioners to accurately assess the tax implications of different distribution scenarios within the context of corporate liquidation.