Norris Corporation is considering the purchase of all of LaGuardia Corp. stock. LaGuardia has a basis in its assets of $1,000,000. The FMV of the assets is $5,000,000. Norris proposes to purchase the stock for $5,000,000 and then to liquidate LaGuardia under §332. LaGuardia has a deficit in E&P in the amount of $400,000.

a. What is the realized and recognized gain to LaGuardia Corp. if Norris purchases the stock and makes a §338 election?
b. What will Norris’ basis be in the LaGuardia assets after the liquidation? What basis would Norris have in the assets if it had not elected §318?
c. What happens to La Guardia’s deficit in E&P after the election and liquidation?

Answer rating: 100% (QA)

Q1 The realized and recognized gain on the sale of the assets would be 4000000 Q2 Norris basis in the LaGuardia assets will be 5000000 after the liquidation because Norris buys the stock for 5000000 a... View the full answer