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Bluebird Corporation owns and operates busses and has decided to liquidate its operations. Victor, who...

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Accounting

Bluebird Corporation owns and operates busses and has decided to liquidate its operations. Victor, who owns 80% of the company's stock, will receive all of the busses, repair parts inventory, and all tools and equipment. He plans to start a bus company in another town. Penny, who owns 20% of the stock, wants nothing to do with the new bus business and will receive a cash distribution. Bluebird will incur about $20,000 of expenses in connection with the liquidation. What tax issues should Victor, Penny, and Bluebird consider with respect to the liquidation? Penny and Victor should consider the following tax issues: What gains or losses does Bluebird recognize on the two distributions? Does Bluebird have to file a corporate tax return for the portion of the final tax year that it is in existence? If so, what income and expenses are included in the return? Can Bluebird deduct the liquidation expenses on its final tax return? What are the amounts and characters of the gain or loss that Penny and Victor recognize upon surrendering their Bluebird stock? What basis does Victor take for the noncash assets that he receives? What happens to Bluebird's tax attributes?

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