Q Corporation had assets with a basis of $800,000 and no liabilities.P Corporation bought all the stock of Q Corporation for $1 million.Three years later, when Q Corporation's assets had shrunk to a basis of $600,000, P Corporation liquidated Q Corporation in a tax-free liquidation under § 332.What is P Corporation's basis in the assets received from Q Corporation? (Assume that P Corporation's basis in its assets not received from Q Corporation at the time of liquidation of Q was $750,000.)
A)$400,000
B)$800,000
C)$1 million
D)$600,000

Question

Quizplus · Accepted Answer

In a tax-free liquidation under § 332, the acquiring corporation's basis in the assets received from the liquidated corporation is equal to the adjusted basis of the stock it purchased minus any liabilities assumed. In this case, P Corporation purchased all the stock of Q Corporation for $1 million, so its basis in the stock is $1 million. Since Q Corporation had no liabilities, P Corporation's basis in the assets it received from Q Corporation is calculated as $1 million (basis in stock) - $0 (liabilities assumed) - $600,000 (adjusted basis of Q Corporation's assets) = $400,000.

Q Corporation Had Assets with a Basis of $800,000 and No