Section 336 taxes the corporation on every asset, Section 336(d)(1) blocks one loss, and Section 331 then taxes Maya and Theo separately in AC507's Unit 6 liquidation problem. Searches like "ac 507 unit 6 assignment example", "ac507 unit 6 sample" and "ac507 unit 6 example" land here.
What a finished AC507 Unit 6 liquidation problem looks like
An asset schedule, a corporate tax block and two shareholder blocks. The schedule lists cash of [$400,000], a warehouse worth [$600,000] with a [$250,000] basis, marketable securities worth [$110,000] with a [$40,000] basis, and forklifts and racking worth [$90,000] with a [$150,000] basis. The corporate block recognizes $350,000 on the warehouse and $70,000 on the securities, then disallows the $60,000 equipment loss because all of it goes to Maya, a related person under Section 267, in a distribution that is not pro rata. Tax at 21 percent comes to $88,200. The shareholder blocks follow. Maya receives the warehouse, the equipment and $88,260 in cash, $778,260 in all, and reports $628,260 of gain over her [$150,000] stock basis; Theo receives the securities and $223,540, reporting $133,540 over a [$200,000] basis.
How a AC507 Unit 6 example is structured
Recognition runs asset by asset, because Section 336(a) treats a liquidating corporation as selling everything it distributes at fair market value. Gains are listed first, then the one loss, which is tested against Section 336(d)(1): Maya owns more than half the stock, making her related under Section 267, and she receives the equipment outright rather than an undivided share, so the distribution is not pro rata. Section 336(d)(2), aimed at property contributed shortly before a liquidation, is checked and found inapplicable because the equipment was bought years ago. Tax is paid before anything leaves, so each owner's share is computed on net assets of $1,111,800. The shareholder blocks share row labels, amount received, stock basis, gain under Section 331 and basis in property under Section 334(a), so they read across. An alternative routes the equipment to Theo.
Every asset treated as sold
Section 336(a) produces $350,000 of warehouse gain and $70,000 on the securities, each measured at the value the distribution schedule assigns.
A loss that goes nowhere
The $60,000 decline on the forklifts and racking is disallowed, and because Maya takes a fair market value basis, nobody ever deducts it.
Tax before distribution
The $88,200 federal liability comes out of cash first, so the owners split $1,111,800 at seventy and thirty rather than the gross [$1,200,000].
Two owners, two gains
Maya's [$150,000] stock basis leaves $628,260 of capital gain; Theo's [$200,000] basis leaves $133,540, each with a fresh basis in what arrived.
The cheaper routing
Sending the equipment to Theo instead lets the loss count, cuts the corporate tax to $75,600 and adds $12,600 to what the two owners share.
Where marks go in AC507 Unit 6
This problem is marked heavily at the corporate level, where papers most often miss the tax entirely or miss the loss rule. A schedule that treats the liquidation as tax-free to the corporation, reasoning that no sale occurred, leaves $88,200 unaccounted for and inflates every figure below it. Allowing the equipment loss without testing relationship and pro rata status is another frequent error; the facts put the loss asset in the majority owner's hands on purpose. Some submissions disallow the loss and then give Maya a carryover basis of [$150,000], preserving a deduction the Code eliminated. Splitting gross rather than net assets misstates both owners' gains. Graders also look for Section 336(d)(2) considered, even briefly. Holding periods and gain character left unstated cost less, as does omitting the alternative distribution the prompt invites.
Get a 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.
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.