Question

Under a plan of complete liquidation, Coast Corporation distributes land with a $300,000 adjusted basis and a $400,000 FMV to William, a 25% shareholder. William has a $200,000basis in his Coast stock. The land is inventory in the hands of Coast Corporation. Coast Corporation must recognize.

a. No gain
b. $100,000 of ordinary income.
c. $100,000 of long-term capital gain.
d. $200,000 of ordinary income.

Answer 1

Answer: B. $100,000 of ordinary income

Step-by-step explanation:

From that above question, the company distributed land with adjusted basis of $300,000 to Williams who had $200,000 in his coast stock.

This means Williams has gained $100,000 ordinary income because of the adjustment.