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54. Partial LiquidationSweeney was the chairman of Sweeney, Inc., a large hardware and lumber store. When Sweeney became ill, his son took over the business but sold the property and all the inventory valued at $2,000,000 within a year. Shortly thereafter, Sweeney recovered and took control of the corporation. The corporation purchased a new building and started a new hardware store. This store, although slightly larger than the original store, did not carry any lumber. Its inventory was valued at $1,900,000. Sweeney changed the name of the corporation, and the board authorized a plan of partial liquidation. Pursuant to that plan, the original shares of the corporation were replaced, and Sweeney distributed almost $2,000,000 to the shareholders as part of the partial liquidation. Each shareholder received $5,000 and one share of stock for every two of the old corporation that was owned.Solution: Will this qualify as a partial liquidation or will the new corporation be viewed as simply a continuation of the old corporation? What would be the difference in the tax consequences for each of these outcomes?
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