The stock in Rhea Corporation is owned by Jennifer (80%) and Lucy (20%), mother and daughter. In a liquidation of the corporation in the current year, Rhea distributes land that it purchased two years ago for $675,000 to Lucy. The property has a fair market value on the date of distribution of $450,000 . One year later, Lucy sells the land for $400,000 . What loss, if any, will Rhea Corporation
recognize with respect to the distribution of land?
a. $0
b. $45,000
c. $225,000
d. $275,000
e. None of the above
a
RATIONALE: The related-party loss limitation applies to disallow the entire $225,000 loss realized on the distribution [$450,000 (fair market value) – $675,000 (land basis)]. There is a distribution of loss property to a related party (Lucy is deemed to own her mother's shares and, thus, 100% of Rhea Corporation directly and indirectly) and the distribution is not pro rata.
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