Final answer:
The statement that Lucinda will have a basis of $125,000 in the land distributed to her by Coral Corporation in a liquidation scenario is true. The basis is determined by subtracting the liability ($75,000) from the fair market value ($200,000) of the land.
Step-by-step explanation:
The student asked whether it is true or false that Lucinda, a shareholder who receives land from Coral Corporation pursuant to a liquidation, will have a basis of $125,000 in the land if the land has a basis of $90,000, fair market value of $200,000, and is subject to a $75,000 liability. This question is false.
When property is distributed in a liquidation, the shareholder's basis in the property received is the property's fair market value, subject to adjustment for any liability assumed with the property. Therefore, Lucinda's basis in the land would be the fair market value of $200,000 minus the liability of $75,000, resulting in a new basis of $125,000 for Lucinda. This was a straightforward calculation of basis in property following corporate liquidation.
n certain situations, such as when the distribution is made in complete liquidation of the shareholder's interest, the shareholder may qualify for non-recognition treatment under Section 331 of the Internal Revenue Code.
Non-recognition treatment means that the shareholder can defer taxes on the liquidation until they sell the assets received. However, it is important to consult a tax professional for specific advice based on individual circumstances.