Mike and Michelle Decided to Liquidate Their Jointly Owned Corporation

Essay

Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. $\begin{array}{|l|r|}\hline \text { Taxable income from operations } & \$ 500,000 \\\hline \text { Loss on distribution of land }(\$ 100,000-\$ 125,000) \text { is disallowed } & 0 \\\hline \text { Total taxable inc ome } & \$ 500,000 \\\hline \text { Federal income tax (\$500,000×34\%)}& (170,000)\\\hline \text { Taxable income } & \$ 500,000 \\\hline \text { Subtract: } & \\\hline \text { Federal income tax } & (170,000) \\\hline \text { Current E \&P } & \$ 330,000 \\\hline \text { Subtract: } & \\\hline \text { E\&P basis of land distributed } & (125,000) \\\hline \text { Add: } & \\\hline \text { Mortgage ass umed by Marcus } & 25,000 \\\hline \text { Current E \&P after distribution } & \$ 230,000 \\\hline \text { Accumulated E\&P, beginning of year } 1 & 850,000 \\\hline \text { Accumulated E\&P, beginning of year } 2 & \$ 1,080,000 \\\hline\end{array}$ Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000.
What amount of gain or loss does Michelle recognize in the complete liquidation and what is her tax basis in the building and land after the complete liquidation?