Corporation X is owned in equal shares by Corporations A and B. A and B are otherwise unrelated.
They decide that they want to liquidate X.
Since this is a closely held corporation, there is no readily available objective price for the stock in X.
Corporation A would like to continue to operate X as an integral part of Corporation A.
So, they devise the following plan:
B sells its stock to A. B will recognize a capital gain to the extent of the excess of the proceeds over its basis in its X stock. A will then liquidate X under Section 332 in a tax-free exchange avoiding any gains recognized by X or A.
What do you think?