Problem:
Corporation A owns 100 percent of the stock of Corporation B, and also owns B Corporation debentures with a face amount (and basis) of $200,000. A plan of liquidation is adopted and Corporation B is liquidated under Code Sec.332.
Pursuant to the liquidation, Corporation B inventory with a FMV of $200,000 and a basis of $140,000 in cancellation of the debentures.
Q1. How much gain is recognized by B Corporation on the distribution of the inventory to Corporation A?
Q2. What is Corporation A's tax basis for the inventory received from Corporation B?