McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 38

Kevin and Bob have owned and operated SOA as a C corporation for a number of years. When they formed the entity, Kevin and Bob each contributed $100,000 to SOA. They each have a current basis of $100,000 in their SOA ownership interest. Information on SOA's assets at the end of year 5 is as follows (SOA does not have any liabilities):
At the end of year 5, SOA liquidated and distributed half of the land, half of the inventory, and half of the cash remaining after paying taxes (if any) to each owner. Assume that, excluding the effects of the liquidating distribution, SOA's taxable income for year 5 is $0. Also, assume that if SOA is required to pay tax, it pays at a flat 30% tax rate.
a. What is the amount and character of gain or loss SOA will recognize on the liquidating distribution
b. What is the amount and character of gain or loss Kevin will recognize on when he receives the liquidating distribution of cash and property Recall that his stock basis is $100,000 and he is treated as having sold his stock for the liquidation proceeds.