Skylark Corporation owns 90% of the outstanding stock of Quail Corporation,having purchased the stock five years ago for $550,000.Pursuant to a plan of liquidation adopted by Quail Corporation on March 4,2010,Quail distributes all its property on December 1,2010,to its shareholders.Quail Corporation had never been insolvent and had E & P of $830,000 on the date of liquidation.Pursuant to the liquidation,Quail distributed property worth $690,000 (basis $580,000)to Skylark Corporation.How much gain must the parties recognize in 2010 on the transfer of this property to Skylark Corporation?
A)$140,000 as to Skylark and $110,000 as to Quail.
B)$0 as to Skylark and $110,000 as to Quail.
C)$140,000 as to Skylark and $0 as to Quail.
D)$30,000 as to Skylark and $110,000 as to Quail.
E)None of the above.

Question

Quizplus · Accepted Answer

Under IRC Section 332, no gain or loss is recognized by a parent corporation on the receipt of property distributed in complete liquidation of a subsidiary, provided the parent owns at least 80% of the subsidiary's stock. Therefore, Skylark recognizes no gain. Quail also recognizes no gain or loss under IRC Section 337 as it is a complete liquidation of a subsidiary.

Skylark Corporation Owns 90% of the Outstanding Stock of Quail