Ruby Corporation has announced plans to liquidate. Bronze Corporation owns 85% of Ruby's stock. If Bronze wants to avoid the nontaxable treatment associated with a § 332 liquidation (e.g., nonrecognition of loss), it could reduce its stock ownership in Ruby to below 80%.

Question

Quizplus · Accepted Answer

Under § 332 of the Internal Revenue Code, a liquidation of a subsidiary is generally tax-free to the parent corporation if the parent owns at least 80% of the stock. By reducing its ownership to below 80%, Bronze Corporation would not qualify for this nontaxable treatment, potentially allowing it to recognize a loss on the liquidation.

Ruby Corporation Has Announced Plans to Liquidate