| Course | AC507 Business Taxation and Strategies |
|---|---|
| Unit | Unit 6 |
| Paper type | Corporate liquidation problem |
| Length | About 550 words, 4 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Accounting |
| Updated | October 2026 |
Free sample paper for AC507 Unit 6
One Set of Forklifts to the Wrong Owner Costs $12,600: A Unit 6 Corporate Liquidation Problem
[Student Name]
Purdue University Global
AC507: Business Taxation and Strategies
Unit 6 Liquidation Problem
[Instructor Name]
[Date]
The flooring wholesaler, its shareholders and every figure are composite; the statutes and publication cited are real; this is coursework analysis, not tax advice.
Asset Schedule
1. Cash: $400,000.
2. Warehouse: value $600,000, basis $250,000, built-in gain $350,000.
3. Marketable securities: value $110,000, basis $40,000, built-in gain $70,000.
4. Forklifts and racking: value $90,000, basis $150,000, built-in loss $60,000.
Total value: $1,200,000. Maya's stock basis is $200,000; Theo's is $90,000.
Corporate Block
In a complete liquidation, a corporation recognizes gain or loss on distributed property as if it had sold it at fair market value (Gain or loss recognized on property distributed in complete liquidation, 26 U.S.C. § 336, 2018). The warehouse produces $350,000 of gain and the securities $70,000.
The plan of liquidation sends all the forklifts and racking to Maya, who will use them in a new business, and the warehouse and securities mostly to Theo. The equipment loss is the problem. No loss is recognized on a distribution to a related person if the distribution is not pro rata or the property was acquired in a recent contribution. Maya owns more than 50 percent of the stock, so she is related to the corporation (Losses, expenses, and interest with respect to transactions between related taxpayers, 26 U.S.C. § 267, 2018), and a distribution of all the equipment to her is not pro rata. The $60,000 loss is disallowed.
Corporate taxable gain is $420,000, and tax at 21 percent is $88,200. If the loss were allowed, net gain would be $360,000 and tax $75,600. The difference is $12,600.
The loss is lost not because the forklifts fell in value but because of who receives them, so the same equipment distributed 70 percent to Maya and 30 percent to Theo, or sold to an outsider first, would save the corporation $12,600.
Shareholder Blocks
After paying $88,200 of tax from cash, $1,111,800 of value remains. Maya receives 70 percent, $778,260, and Theo 30 percent, $333,540. Shareholders treat amounts received in complete liquidation as full payment in exchange for their stock (Distributions in complete liquidation treated as exchanges, 26 U.S.C. § 331, 2018).
Maya's gain is $778,260 less her $200,000 basis, $578,260. Theo's gain is $333,540 less $90,000, $243,540. Both gains are long-term capital gain. Each takes a basis in the property received equal to its fair market value.
The Fix
Two alternatives avoid the disallowance. First, distribute the forklifts and racking pro rata, 70 percent to Maya and 30 percent to Theo, with Maya buying Theo's share afterward if she wants all of it. Second, have the corporation sell the equipment to an unrelated dealer before liquidating and distribute the cash; Maya can buy replacement equipment. Either way, the $60,000 loss reduces corporate tax by $12,600, and both shareholders receive more: $1,124,400 to share instead of $1,111,800, or $8,820 more for Maya and $3,780 more for Theo (Internal Revenue Service, 2025).
Other Checks
The securities and warehouse gains are unaffected by the related-party rule. The corporation must file a final return and Form 966 within thirty days of adopting the plan.
References
Distributions in complete liquidation treated as exchanges, 26 U.S.C. § 331 (2018).
Gain or loss recognized on property distributed in complete liquidation, 26 U.S.C. § 336 (2018).
Internal Revenue Service. (2025). Corporations (Publication 542). U.S. Department of the Treasury.
Losses, expenses, and interest with respect to transactions between related taxpayers, 26 U.S.C. § 267 (2018).
The Purdue Global AC507 Unit 6 instructions
Unit 6 of AC507 asks you to compute the tax effects of a complete liquidation for the corporation and its shareholders. Put every asset in a schedule showing what it is worth, what it cost for tax purposes and the difference. Then apply the corporate rule that treats distributed property as sold at fair market value, then test every loss against the related-party and anti-stuffing limits, explaining who is related and whether the distribution is pro rata. Compute the corporate tax. Then compute what each shareholder receives after the corporate tax, each one's gain or loss on the stock, and the basis of property received. Identify any planning change that would reduce tax, such as pro rata distribution or a prior sale, and quantify it. Mention filing requirements. Reference the liquidation, related-party and exchange statutes and IRS guidance in APA 7.
How this AC507 Unit 6 example is built
The sample's schedule lists cash of $400,000, a warehouse with $350,000 of gain, securities with $70,000 and equipment with a $60,000 loss, against stock bases of $200,000 and $90,000. The corporate block recognizes $420,000 of gain and disallows the loss because all equipment goes to Maya, who owns more than half the stock, producing $88,200 of tax instead of $75,600. The highlighted sentence identifies the fix. Shareholder blocks split $1,111,800 of value, giving Maya a $578,260 gain and Theo a $243,540 gain. The fix section shows a pro rata split or a prior sale adding $8,820 for Maya and $3,780 for Theo, and a final note lists the required filings.
AC507 Unit 6 rubric: what earns full points
Liquidation problems in AC507 earn points for correct corporate gain and loss and careful application of the loss limits. Graders check each asset's built-in gain or loss, the related-party test and the pro rata requirement, and the resulting corporate tax. The rubric rewards quantifying the cost of a disallowed loss and proposing a fix that restores it. Shareholder computations must reflect value after corporate tax and give fair market value basis in property received. Mentioning filing steps shows practical command. Answers that allow every loss without testing, or that treat a non-pro-rata distribution as harmless, miss the unit's key issue. Statutes and IRS guidance belong in APA 7 references.
AC507 Unit 6 help: mistakes that cost points
Weak Unit 6 answers recognize every gain and loss without asking who receives the loss property. Others treat any shareholder as related or none, without applying the more-than-50-percent test. The pro rata requirement is overlooked. Shareholder amounts are computed before corporate tax is paid. Basis in property received is set at the corporation's old basis. The fix is described without numbers. Filing deadlines are forgotten. If your section's corporation has contributed property within the anti-stuffing window or liabilities on its assets, a writer can extend the analysis to those facts.
Get an AC507 Unit 6 example written to your instructions
For Unit 6, send each asset's value and basis, how ownership is divided, any family ties among the owners and each shareholder's basis in the stock, with the rubric attached. Corporate tax is settled before anything is distributed, each owner gets a block, and delivery is 24-48h. No charge applies to a first custom sample. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC507 Unit 6 questions, answered
Why is the equipment loss disallowed only when Maya receives it?
Section 336(d)(1) bars a liquidating corporation's loss on a distribution to a related person unless the distribution is pro rata and the property is not disqualified. Maya, holding 70 percent, is related under Section 267; Theo, at 30 percent and not family, is not. So the same forklifts produce a deductible loss routed to Theo and a disallowed one routed to Maya, which is the lesson the prompt is built around.
Could the corporation have sold the equipment before liquidating?
Yes, and a sale to an unrelated buyer would have produced a recognized loss with no Section 336(d) issue, the cash then distributed. The example mentions this in its alternatives paragraph. A sale to Maya herself would not help, since Section 267 disallows losses on sales between a corporation and its majority owner. Prompts sometimes offer that choice to see whether both rules are recognized.
Are the owners' gains long-term?
Each owner's gain is capital, and it is long-term if the stock was held more than a year, which the example assumes and states. Rates stay bracketed because they turn on what each owner earns overall in the liquidation year. Where distributions stretch across two tax years, gain is recognized only after basis is fully recovered, and the example notes that timing rule in a sentence.
Where can I find a free AC507 Unit 6 sample paper?
This page holds a full AC507 Unit 6 liquidation problem for a composite flooring corporation, with corporate gains, a disallowed related-party loss, shareholder gains, a pro rata fix and APA 7 references.
Why is Maya a related person but Theo is not?
Maya owns 70 percent of the stock, more than 50 percent, which makes her related to the corporation. Theo's 30 percent does not, so a loss on property distributed to him would not be limited by this rule.