In October 2010, Jose acquired 100% of Acorn Corporation common stock by transferring property with an adjusted basis of $1,000,000 and fair market value of $4,000,000. Acorn is a qualified small business corporation. On April 1, 2022, Jose sells all of the Acorn Corporation common stock for $16,000,000.
a. What is the amount of gain that may be excluded from Jose’s gross income?
b. What would your answer be if the fair market value of the Acorn stock were only $800,000 upon its issue?
c. What would your answer be if the stock were sold after two years?
d. Can Jose avoid recognizing gain by purchasing replacement stock?In October 2010, Jose acquired 100% of Acorn Corporation common stock by transferring property with an adjusted basis of $1,000,000 and fair market value of $4,000,000. Acorn is a qualified small business corporation. On April 1, 2022, Jose sells all of the Acorn Corporation common stock for $16,000,000.
a. What is the amount of gain that may be excluded from Jose’s gross income?
b. What would your answer be if the fair market value of the Acorn stock were only $800,000 upon its issue?
c. What would your answer be if the stock were sold after two years?
d. Can Jose avoid recognizing gain by purchasing replacement stock?