On January 30 of the current year, Ashton Corporation purchased from Cathy 10% of Todd Corporation stock for $250,000 in cash. On May 30 of the following year, Andrea and Bill each exchange one-half of the remaining 90% of the Todd stock for $1.2 million of Ashton voting common stock. Andrea and Bill each have a $150,000 basis in their Todd stock, and each owns 15% of the Ashton stock (12,000 shares) immediately after the reorganization.
a. What are the amount and character of each shareholder’s recognized gain or loss?
b. What is each shareholder’s basis in his or her Ashton stock?
c. What is Ashton’s basis in the Todd stock?
d. How would your answers to Parts a–c change if instead Ashton had acquired the remaining Todd stock on May 30 of the current year?
e. What effect would the stock acquisition have on the adjusted bases of individual assets and the tax attributes of Todd?
f. Can the Ashton-Todd corporate group file a consolidated tax return?
g. Can a Sec. 338 election be made with respect to Todd’s assets?