Tax Returns Assignment

Maggie Corporation has adopted a plan of complete liquidation and plans to distribute all its property to its two unrelated shareholders, Sharon Corporation and Gunner Corporation. Sharon Corporation owns 75% and has a tax basis of $100,000 in Maggie Corporation. Gunner Corporation owns 25% and has a tax basis of $50,000.

The plan of liquidation calls for Maggie to initially distribute $250,000 in cash to Gunner, and operating assets with a fair market of $750,000 to Sharon Corporation. Maggie has a tax basis of $250,000 in the operating assets distributed to Sharon Corporation. In addition, Maggie will hold aside approximately $150,000 to cover any of its future tax liabilities. At a future date, any amount of the $150,000 that is not used for taxes will be distributed 75% to Sharon and 25% to Gunner.

Assume that the corporate tax rate is 21% and that all gains are fully taxable.

1. How will Maggie Corporation, Gunner and Sharon report this transaction on their respective tax returns?

Assume that the transaction is changed so that initially Sharon Corporation buys 5% of Gunner’s stock in Maggie for $50,000. After the initial sale is “old and cold,” Maggie adopts a plan of liquidation and distributes $200,000 in cash to Gunner, $50,000 of cash to Sharon, and operating assets with a fair market value of $750,000 and a tax basis of $250,000 to Sharon. Any unused amount of the $150,000 tax reserve will be distributed 80% to Sharon and 20% to Gunner.

As above, assume that the corporate tax rate is 21% and that all gains are fully taxable.

2. How will Maggie Corporation, Gunner and Sharon report this transaction on their respective tax returns? Get Finance homework help today