J owns all the stock of T. T\'s only asset is a thoroughbred racing track with a
ID: 2446179 • Letter: J
Question
J owns all the stock of T. T's only asset is a thoroughbred racing track with an adjusted basis of $1,200,000 and a fair market value of $3,000,000. J's basis in the T stock is $1,000,000.P, a corporate developer of shopping malls wants to acquire the race track for a mall site. P and J agree on a Type C reorganization, with T trading the race track for P stock worth $2,580,000 and $20,000 in cash and then liquidating. P will give T some treasury shares P bought in the market for $2,000,000. Assume this will qualify as a good type C reorganization to which T and P are "parties to a reorganization."
A upon T's distribution of the P stock and cash to J, T recognizes no gain under Section 336(c) and section 361(c).
B Upon the distribution of the P stock and cash, T has recognized gain of $20,000 on the distribution of the boot.
C Upon the distribution of the P stock and cash, T has gain of $2,580,000 less $1,200,000 less $20,000.
D none of the above. D none of the above.
please explain why you choose this answer. Thank you.
Explanation / Answer
CARRYING VALUE OF RACE TRACK=$12,00,000
T TRADED THE RACE TRACK IN EXCHANGE FOR P STOCK OF VALUE $25,80,000 AND CASH OF $20,000
EXCHANGE PRICE GIVEN BY P TO T=$20,00,000
THE STATEMENT (C) UPON THE DISTRIBUTION OF P STOCK AND CASH ,T HAS GAIN OF $25,80,000 LESS $12,00,000 LESS $ 20,000 IS CORRECT.SINCE INEXCHANGE FOR THE RACE TRACK OF WORTH $ 12,00,000 T IS GETTING P STOCK OF WORTH $25,80,000 AND IN ADDITION IS PAYING $20,000
SO TOTAL VALUE COMING IN =$ 25,80,000
TOTAL VALUE GOING OUT=$12,00,000 +$20,000
GAIN TO T =VALUE COMING IN- VALUE GOING OUT
=$25,80,000-(12,00,000+20,000)
=$25,80,000-$12,00,000-$20,000
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