J owns all the stock of T. T\'s only assets is a thoroughbred racing track with
ID: 2452835 • Letter: J
Question
J owns all the stock of T. T's only assets 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 teh 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 treasure share 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."
New assumption: same facts as above, except J incorporated the race track just prior to doing the deal with P. J used Section 351 to incorporate the track. Also, J and P decide to do a Type B stock for stock reorganization rather than a type C reorganization.
a This is a good Section 351 followed by a good Type B reorganization so that J can avoid tax. The taxpayer is free to arrange transactions to minimize tax.
b The IRS might well argue that the two transactions are too closely related under the step transactions doctrine and treat the transactions as if J had sold the assets to P which would have happened if J had not incorporated shorthly before the Type B reorganization.
c Neither of the above.
Which is the correct answer and explain why please
Explanation / Answer
J owns all the stock of T. T's only assets is a thoroughbred racing track with
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