Let's now apply the related party anti-stuffing rules to Sunchaser Shakery. Nicholas owns 51 percent of Sunchaser Shakery Corporation. Five years ago, Nicholas contributed property with an adjusted basis of $35,000 and a fair market value of $3,000 to Sunchaser in a section 351 transaction. In the current year, Sunchaser adopted a plan of complete liquidation and distributed the same property to Nicholas. At this time, the property had an adjusted basis of $13,000 and a fair market value of $2,500. What are the tax effects of the distribution for Sunchaser? So let's start by looking at the transaction at the time of the distribution where the property has a fair market value of $2,500 and an adjusted basis of 13,000. Thus, we see that there's actually a $10,500 loss on the property. However, this is important because losses create special situations. So recall that the gain or loss is recognized on liquidating distributions under Section 336. However, 336 D1 says that there's no loss recognized if the distribution is to a related party, which is defined as a greater than 50 percent shareholder, unless, the distribution is pro-rata and the property was not acquired in a section 351 exchange or capital contribution transaction during the last five years. We were told that the problem here that the property actually was acquired in a section 351 transaction within the last five years. As a result, the requirements are not met and Sunchaser is not able to recognize a loss in this particular transaction. Sunchaser Shakery Corporation stock is owned by Nicholas, 80 percent, and his mother Emily, 20 percent. In a complete liquidation of the corporation, Sunchaser distributed land purchased two years ago for $630,000 to Emily. The property had a fair market value of $210,000 at the time of the distribution. Now, we want to know what are the tax effects of the distribution for Sunchaser. So let's just start by calculating whether there is any realized gain or loss on the transaction. So if we begin with the amount realized the fair market value of the property, $210000, and subtract the adjusted basis of $630,000, we see that there's a $420,000 realized loss on the transaction. So the question then is, how much of this realized loss is recognized? And the answer is, none. Why? Because the related party anti-stuffing rule in losses disallows this entire loss that is realized on the distribution. Why? Because there's a distribution of lost property to a related party. So, who's the related party in this situation? Emily. Because Emily is deemed to own Nicholas' shares. 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. And the distribution also consists of disqualified property because Sunchaser acquired it in a capital contribution transaction within five years. And since the property consists of disqualified property, it is actually irrelevant that the distribution itself is pro-rata. The issue is that the related party loss limitation still applies. Thus, requiring no loss recognition.