CHAPTER 20 CORPORATIONS: DISTRIBUTIONS IN COMPLETE

1. 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?

2. Dipper Corporation is acquiring Bulbul Corporation by exchanging 220,000 shares of Dipper stock and $80,000 cash for all of Bulbul’s assets (valued at $500,000), liabilities ($200,000), and accumulated earnings and profits ($120,000). Betty purchased 40% of Bulbul five years ago for $60,000, and Keith purchased the remaining 60% for $90,000. What is the amount and character of the gain or loss that Betty and Keith recognize (if any), assuming that the exchange qualifies as a § 368 reorganization? What is the basis in their new Dipper stock?

3. Explain why the antistuffing rules were enacted to limit the deductibility of losses realized by a corporation upon liquidation.