Acquiring Corporation transfers $500,000 stock and land with a value of $400,000 (basis of $250,000) to Target for most of its assets. The assets not acquired in the “Type A” reorganization are distributed to Target’s shareholder, Tia. They are valued at $100,000 (basis of $120,000). Acquiring stock and the land also are distributed to Tia in exchange for her stock in Target. Tia’s basis in her stock is $650,000. What is the gain or loss recognized by Acquiring, Target, and Tia on this restructuring? What is Tia’s basis in the Acquiring stock?

Question

What will be an ideal response?

Answer 1

Acquiring recognizes $150,000 gain on land; Target cannot recognize its loss on the assets;and Tia recognizes a $350,000 gain. Tia’s basis in her stock $500,000.?Acquiring’s gain on the land is $400,000 value – $250,000 basis. While Target realizes a$20,000 loss on the assets ($100,000 value – $120,000 basis), loss recognition is disallowed.??Tia receives $1 million for her Target stock ($500,000 Acquiring stock + $400,000land + $100,000 assets), and her basis in the stock is $650,000. The gain recognizedby Tia is caused by the boot received ($400,000 land + $100,000 assets). Since Tia’srecognized gain cannot be greater than her realized gain, her gain is limited to $350,000.Thus, Tia’s stock basis is $500,000. Gain and basis amounts are computed as follows.??