As part of a qualifying tax-free reorganization Jones Corp exchanges $1,000,000 of its common stock and equipment worth $200,000 (basis of $50,000) for all of Waggle Corp’s assets which have a basis of $500,000. Waggle distributes the Jones stock and equipment received to their shareholders who have a basis in their Waggle stock of $500,000. Waggle has an E&P of $100,000 at the time of the distributions.

How much gain does gain, or loss, do Waggle’s shareholders recognize as part of their taxable income as a result of the reorganization?

Answer rating: 100% (QA)

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