Indigo has a basis of $1 million in the stock of Owl Corporation, a subsidiary in which it owns 100% of all classes of stock. Indigo purchased the stock in Owl 10 years ago. In the current year, Indigo liquidates Owl and acquires assets worth $1.2 million. At the time of its liquidation, Owl Corporation had a basis of $800,000 in the assets and E & P of $500,000. Which of the following statements is correct with respect to the liquidation?
a. Owl recognizes a gain of $400,000.
b. Indigo has a $1 million basis in the assets.
c. Owl’s E & P of $500,000 is eliminated.
d. Indigo recognizes a gain of $200,000.
e. None of the above