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On January 1, Year 1, Can Corporation distributed Sec. 1231 land with a market value of $300,000 and an adjusted basis of $205,000 under a plan of partial liquidation under the Sec. 302(b)(4) rules. The distribution was made to individual shareholder Clem, who had owned 40% of Can since it was founded. Clem’s stock interest redeemed in the partial liquidation had a basis of $140,000. What are the amount and the character of gain/loss that Can should recognize on the distribution?

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abiolataiwo2015

Answer:

1231 gain of $95,000

Explanation:

Calculation to determine the amount and the character of gain/loss that Can should recognize on the distribution

Using this formula

Amount of gain/loss =Market value of land -Adjusted basis

Let plug in the formula

Amount of gain/loss= ($300,000 - $205,000).

Amount of gain/loss=1231 gain of $95,000

Therefore the amount and the character of gain/loss that Can should recognize on the distribution will be 1231 gain of the amount of $95,000

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