Problem
Prime Corporation liquidates its 85% owned subsidiary, Bass Corporation, under the provisions of Sec. 332 and 337. Bass Corporation distributes land to its minority shareholder, John, who owns a 15% interest. The property received by John has a $55,000 FMV. The land was used in the Bass Corporation's business and has a $65,000 adjusted basis and is subject to a $10,000 liability which is assumed by John. John's basis in his stock is $25,000. What gain or loss will John and Bass Corporation recognize on the distribution of the land?
John Bass
a. 20,000 Gain 0
b. 20,000 Gain 10,000 loss
c. 30,000 Gain 0
d. $30,000 Gain $10,000 loss
How will Prime Corporation determine the cost basis of the assets it receives from Bass Corporation?