X Corp Long-Term Capital Gain Discussion

X Corp Long-Term Capital Gain Discussion

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X Corp Long-Term Capital Gain DiscussioN

Question Description

An individual, owns 100% of X Corp, which is a C corporation. A’s basis in this stock is $50. X has two assets: cash of $20 and a parcel of land. The land has a basis of $50 and a fair market value of $100 on January 1, 2020. Effective January 1, 2020 X elects S status. X then sells the land for $100 on July 1, 2020. Later in the year, X liquidates. What consequences to X?

A, B and C, all individuals, own, respectively, 25%, 20% and 55% of X Corp. Their bases in their stock interests are $2,500, $200, and $4,000, respectively.

X has the following items of tax significance for the current year: gross profits, $20,000; depreciation, $8,000; interest expense, $2,000; charitable contributions, $500; long-term capital gain, $5,000. (a) How do these results effect the individual tax returns of A, B and C?

(b) Suppose that A had bought her interest from another individual D on January 30. How would this change your answer? (c) Assume the same facts as (a) except that the gross profit was only $2,000. How would this change your answer? (d) Same as (c) except that X owes B $500. Would this change your answer?

(e) Refer back to the facts of 3(c). What bases do A, B and C have at yearend? (f) In question 3(d), what bases do A, B and C have at yearend? (g) Same as (f) except that in the following year X has income of $10,000. What basis does B have at the end of this following year?

X Corp Long-Term Capital Gain Discussion

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