ParentCo sells street vending carts and has been in business for 10 years
Question # 00247639
Posted By:
Updated on: 04/11/2016 01:37 AM Due on: 04/11/2016
ParentCo sells street vending carts and has been in business for 10 years. The subsidiary, SubCo, has been in the business of selling refrigerated vending carts for 8 years. You are a 50% partner of ParentCo with Able. The basis of your shares is $80,000 while Able’s basis is $60,000. On April 10, 20x1, ParentCo allocated 100% of SubCo stock to shareholder Able in exchange for the Able’s ParentCo shares. Able’s ParentCo shares are subsequently cancelled. There is a bona fide business purpose for this exchange. At the end of 20x1, ParentCo has $150,000 of E&P. The fair market value of ParentCo stock is $3,000/share and the fair market value of SubCo is $1,000/share.
- What is the amount and character of the gain, loss or income that must be recognized by you as a result of the distribution of the SubCo stock?
- What is the amount and character of the gain, loss or income that must be recognized by ParentCo as a result of the distribution of the SubCo stock?
- What is Able’s basis in the SubCo’s stock?
- When will Able’s holding period for the SubCo stock begin?
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Rating:
/5
Solution: ParentCo sells street vending carts and has been in business for 10 years