Assignment task: Al, Bob & Carl are 3 unrelated individuals each of whom own 1,000 of the 3,000 shares of the single class of stock of Alpha Corporation. Al's adjusted basis in his shares is $100,000 ($100/per share). Bob's adjusted basis in his shares is $100,000 ($125 per one block of 500 shares and $75 per share for another block of 500 shares). Carl's adjusted basis in his shares is $120,000 ($110 per share for one block of 500 shares and $130 per share for another block of 500 shares). All of the Alpha shares have been held by their owner for more than one year and are capital assets in their hands. All taxpayers are on the calendar year and use the cash method. The 3 shareholders are also officers directors and employees of Alpha Corp.
Alpha owns and operates 2 apartment complexes: The Rose apartments and the Daisy apartments. Assume that all relevant times each of the 2 apartment complexes has a FMV of $600,000 and that there is no recapture potential in either complex. Alpha's suggested basis in the Rose apartments is $700,000 and Alpha's adjusted basis in the Daisy apartments is $200,000 at all relevant times. Alpha had no net income or losses from its operations this year, its taxable income arises solely from the liquidating transaction described below:
1. On 7/01 of the current year, Alpha formally adopts a plan of complete liquidation. Pursuant to the plan, Alpha sells the Rose apartments to Beta Corp. for $600,000 on 7/15 and sells the Daisy apartments to S, an individual, for $600,000 on 8/15. On 9/01 Alpha distributes the after tax proceeds (assume taxes of $100,000 or paid by Alpha) of both sales (plus some miscellaneous assets it owned worth $100,000) 1/3 to each shareholder in exchange for all of their Alpha shares. Alpha Corporation is not dissolved under state law. What are the tax consequences to Al, Bob, Carl and Alpha?
2. On 7/01 for the current near, Alpha formally adopts a plan of complete liquidation. Pursuant to the plan, Alpha distributes the title to the Rose apartments and the Daisy apartments plus the miscellaneous assets to Al, Bob and Carl as tenants in common. Al, Bob and Carl continue to operate the Rose and Daisy apartments as partners. What are the tax consequences to Al, Bob, Carl and Alpha?
3. Refer to (a) and (b) above. Suppose that pursuant to the plan of liquidation, the Rose apartments were sold to Beta (as in (a) and cash distributed) and the Daisy apartments were distributed to the shareholders as tenants in common (as in (b)). What are the tax consequences to Al, Bob Carl, and Alpha?