Tax Implications Of Business Sale/Liquidation Practice Test

Spruce, Inc., a C corporation, sells all assets to an unrelated buyer for $900,000 and then liquidates, distributing the after-tax cash to its shareholders. Spruce’s aggregate adjusted basis in assets is $650,000; shareholder stock basis is $100,000 and the stock has been held for more than one year. What is the tax impact of this transaction?

Cypress, Inc., a C corporation, sells all assets to an unrelated buyer and then liquidates. Cypress’s shareholders ask whether the liquidation distribution is treated as a sale or exchange of their stock or as a dividend, and whether the corporation recognizes gain on distributing property. Which tax treatment applies under Sections 331 and 336?