Corporate Distributions in Complete Liquidation
Black Castle Inc. adopts a plan of complete liquidation and distributes a truck worth $15,000 with an original basis of $25,000 and an adjusted basis of $7,000 to a 40 percent shareholder with a stock basis of $3,000. The shareholder subsequently claims $4,000 of depreciation on the truck, and later sells it for $13,000.
a. What is the shareholder's gain, including its character, upon receipt of the truck? Black Castle's gain?
b. What are the shareholder's and Black Castle's gains upon the truck's subsequent sale?
Historical cost 25,000
Market value 15,000 15,000
Less: Adjusted ...