Wasp Corrp acquires all the shares of Bee Corp in exchange for Wasp Corp voting

Question

Wasp Corrp acquires all the shares of Bee Corp in exchange for Wasp Corp voting common stock worth 125,000. Bee’s sole shareholder Hive had an adjusted basis in Bee of 34,000. Bee’s assets had a total adjusted basis of 13,000.

a) Is hive taxed on the disposition of the Bee shares? Explain

b) What is Hive’s adjusted basis in the Wasp shares received in the transaction?

c) What is Wasp’s adjusted basis in the Bee shares?  

d) What is the adjusted basis of Bee’s assets after the transactions?

e) Would the answer to part a change and if so how, if Wasp gave Bee Wasp 33,000 in Wasp voting stock and 1,000 in cash?

Explanation / Answer

(a) Yes tax should be pay by hive on disposal of shares

Total Gain to Hive = Sale proceed to wasp - adjusted basis = 135000 - 34000 = 101000

Tax will be = gain * rate of tax

(B Hive’s adjusted basis in the Wasp shares is $ 34000

(c) Wasp’s adjusted basis in the Bee shares is $ 135000

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