And thus, 100 percent of Sunchaser.

Also the distribution is not pro-rata.

So recall that a corporation cannot recognize loss in a liquidating distribution if

the shareholder owns directly or indirectly 50 percent of the outstanding stock.

Thus, in this case no loss can be recognized by the corporation.

Sunchaser Shakery Corporation stock is held equally by two brothers.

Four years ago, the shareholders transfer property with an adjusted basis of

$180,000 and a fair market value of $220,000 to Sunchaser as a contribution to capital.

In the current year, pursuant to a liquidation plan,

the property is distributed proportionately to the brothers.

At the time of the distribution,

the property was worth $62,000 and we

want to know what are the tax effects of the distribution for Sunchaser.

So let's begin by looking as to whether there is

any realized gain or loss on the transaction.

So we can start with the fair market value of the property of $62,000 and consider

the adjusted basis of $180,000.

Thus, we see that there's a $118,000 realized loss.

And the question is then, how much of this loss can we recognize?

And in this case, the answer is zero.

Why?

Because of the related party loss limitation.

So, what we have here is a distribution of lost property to related party,

because both brothers own 100 percent of Sunchaser, directly and indirectly.