Choice "A" is correct. No gain or loss is recognized by either the parent corporation (Forrest) or the subsidiary corporation (Diamond) when the parent, who owns at least 80% of the stock (Forrest owns 100% of the stock), liquidates its subsidiary. The parent assumes the basis of the subsidiary's assets as well as any unused NOL carryover, capital loss carryover, or charitable contribution carryover.
Choice "c" is incorrect. The $70,000 is the difference between the $270,000 adjusted basis of the property received in the distribution and Forest's $200,000 basis in the Diamond stock. That difference does not represent the amount of gain recognized by Forrest on the distribution.
Choice "d" is incorrect. The $270,000 is the adjusted basis to Diamond of the property received in the distribution. That amount does not represent the amount of gain recognized by Forrest on the distribution.
Choice "b" is incorrect. The $500,000 is the fair market value of the property received in the distribution. That amount does not represent the amount of gain recognized by Forest on the distribution.