Answer Happy

Rex and Felix are the sole shareholders of Dogs and CatsCorporation (DCC). After several years of operations using theaccrual method, they decided to liquidate the corporation andoperate the business as a partnership. Rex and Felix hired a lawyerto draw up the legal papers to dissolve the corporation, but theyneed some tax advice from you, their trusted accountant. They arehoping you will find a way for them to liquidate the corporationwhile minimizing their total income tax liability.Rex has a tax basis in his shares of $60,000 and Felix has a taxbasis in his shares of $30,000. DCC’s tax accounting balance sheetat the date of liquidation is as follows:
Adjusted BasisFMV Assets
Cash $52,000 $52,000
Accounts receivable 32,000 32,000
Inventory 32,000 64,000
Equipment 63,000 42,000
Building 32,000 64,000
Land 10,000 76,000
Total assets $221,000 $330,000
Liabilities
Accounts payable $105,000
Mortgage payable—Building 50,000
Mortgage payable—Land 50,000
Total liabilities $205,000
Shareholders’Equity
Common stock—Rex (80%) $100,000
Common stock—Felix (20%) 25,000
Total shareholders equity $125,000