Parent Corporation purchased 75 percent of Subsidiary Corporation in 2000; Subsidiary’s current balance sheet shows the following figures:
Basis Value
Demand Deposit $20,000 $20,000
IBM Stock $30,000 $50,000
Parking Lot $5,000 $30,000
Building 0 $100,000
Mortgage ($15,000) ($15,000)
Subsidiary has a net operating loss carryover in 2006 of $7,000 and earnings and profits of $22,000. The subsidiary redeemed in 2003 the 25% shareholder Roy Rogers. The Subsidiary distributed the IBM stock for his 25% interest. In 2006, Subsidary adpots a plan of liquidation.
a. What is the tax result to Roy in 2003? (i.e. realized, recognized gain or loss, tax character)?
b. Does subsidiary recognize any gain on the redemption and the liquidation? (i.e. realized, recognized, and the tax character)?
c. What are Parent’s basis for the assets received?
d. What happens to Subsidiary’s NOL and E&P?
In your analysi give computation anf the IRC section.