IRC 334: Can parent corporations choose the cost basis treatment when liquidating a subsidiary?

Thanks for clearing that up. So if I understand correctly, there's no choice involved - the parent MUST take carryover basis, and the subsidiary DOESN'T recognize gain/loss. Does this carryover basis rule apply to absolutely all assets transferred in the liquidation? Are there any exceptions where fair market value might come into play instead?

You're exactly right - in a qualifying 332 liquidation, carryover basis is mandatory, not optional. The parent must take the subsidiary's basis in the assets. There are very limited exceptions. The main one is for certain intragroup liquidations where the subsidiary holds property with a built-in loss - in these cases, anti-abuse provisions might apply to limit the parent's ability to recognize that loss. But for regular 332 liquidations, carryover basis applies to all assets. Fair market value generally doesn't come into play for determining the parent's basis in the assets received.

How exactly does taxr.ai work? Does it just give general explanations of tax code or can it actually help with specific scenarios like this subsidiary liquidation situation? I've tried other tax research tools and they're usually too general to be helpful.

I'm skeptical about these AI tax tools. How can it possibly understand all the complexity around corporate liquidations? Did it actually cite relevant case law or just regurgitate the code? Corp tax requires real expertise, not algorithms.

It goes way beyond general explanations. You can upload documents or ask specific questions about your scenario. For this liquidation situation, I entered the details of the parent-sub relationship and it analyzed the specific basis implications, even pointing out exceptions I hadn't considered. As for case law, it actually does cite relevant rulings and court decisions. It referenced several Tax Court cases specific to Section 334 basis determinations and explained how the courts have interpreted the carryover basis requirements. It's not just regurgitating code - it connects relevant provisions, regulations, and cases to your specific situation.

Wait, how does this actually work? I thought it was impossible to reach anyone at the IRS these days. Is this just paying for a fancy hold service or do they actually get you through to someone who understands corporate tax? Most regular IRS agents don't know the first thing about IRC 334.

Sounds too good to be true. The IRS business division has insane wait times and even if you get through, they usually just give generic answers and tell you to consult a professional. I doubt they'd give specific guidance on liquidation basis treatments.

It's not a fancy hold service - it uses priority lines that practitioners have access to. They connect you with the Business and Specialty Tax Line which is staffed by agents who specifically handle corporate tax matters. I was connected within 20 minutes when I had previously spent 3+ hours on hold. The agent I spoke with was extremely knowledgeable about corporate liquidations and 334(b) basis issues. They confirmed the carryover basis treatment and explained how the recognition rules work. While they won't give specific tax planning advice, they absolutely can clarify how the code provisions work and confirm the general treatment of parent-subsidiary liquidations.

But what about Section 336(e)? Doesn't that election let you treat the liquidation differently for basis purposes? I thought that gave corporations some flexibility in how assets are valued during liquidation.

Good question about 336(e). That election is different - it applies to certain stock dispositions, not to the liquidation itself. A 336(e) election can apply when a corporation sells stock of a subsidiary, and it essentially treats the transaction as an asset sale rather than a stock sale. But in a straight 332 liquidation where the parent is receiving assets directly from its subsidiary, 334(b)(1) controls and mandates carryover basis. The flexibility you're thinking about might relate to planning opportunities before the liquidation, but not to the basis determination once you're in a qualifying 332 liquidation.

Totally agree. My company did a subsidiary liquidation last year and we got caught by the built-in loss limitations we didn't know about. Cost us a fortune. Would have been worth paying a specialist!