A owns 100 shares of Humdrum Corporation which he purchased several years ago for $10,000. What are the tax consequences to A on the liquidation of Humdrum Corporation in the following alternative situations: (c) Humdrum distributes $8,000 cash and an installment obligation with a face and FMV of $12,000, payable $1,000 per year for 12 years with market rate interest. The installment obligation was received by Humdrum two months ago, after the adoption of the plan of liquidation, on the sale of a capital asset. Would the result be different here if the stock were publicly traded? (d) What result in (a), above, if two years later, A is required to pay a $5,000 judgment against Humdrum in his capacity as a transferee of the corporation. Compare this with the result if the judgment had been rendered and paid by the corporation prior to the liquidation.
A owns 100 shares of Humdrum Corporation which he purchased several years ago for $10,000. What are the tax consequences to A on the liquidation of Humdrum Corporation in the following alternative situations:
(c) Humdrum distributes $8,000 cash and an installment obligation with a face and FMV of $12,000, payable $1,000 per year for 12 years with market rate interest. The installment obligation was received by Humdrum two months ago, after the adoption of the plan of liquidation, on the sale of a capital asset. Would the result be different here if the stock were publicly traded?
(d) What result in (a), above, if two years later, A is required to pay a $5,000 judgment against Humdrum in his capacity as a transferee of the corporation. Compare this with the result if the judgment had been rendered and paid by the corporation prior to the liquidation.
Liquidation as a tax concept: It termination of corporate activities, distribution of assets of the corporations, and satisfaction of liabilities.
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