Corporation E is owned by Liam, an individual. Corporation E owns real estate as an investment and an operating business. Corporation X wants to buy the business but is not interested in the real estate. Pursuant to a plan, on Day 1, E transfers the real estate to Individual 1 in redemption of 50% of Liam's stock, and on Day 2, Corporation X buys the remaining 50% of Liam's stock for cash. Assume the following facts: Liam's stock Real Estate owned by E Business owned by E Total Value and Basis Corporation E's E&P Fair market value 1,000,000 500,000 500,000 Basis 100,000 500,000 500,000 E&P 2,000,000 WHAT IS THE LIKELY TREATMENT OF THE PROPOSED TRANSACTIONS? FOR SIMPLICITY, ASSUME A 20% TAX RATE FOR LIAM. WHAT IS THE RISK IF THE DAY 1 AND DAY 2 TRANSACTIONS ARE VIEWED AS SEPARATE

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The proposed transactions if treated as separate could pose tax risks for Liam Heres a breakdown Day ... View the full answer