Austin Corporation exchanges $1.5 million of its voting common stock for all of Travis Corporation’s single class of stock. Ingrid, who owns all the Travis stock, has a $375,000 stock basis. Immediately after the reorganization, Ingrid owns 25% of the 15,000 outstanding shares of Austin stock.
a. What are the amount and character of Ingrid’s recognized gain or loss?
b. What is Ingrid’s basis in her Austin stock?
c. What is Austin’s basis in the Travis stock?
d. What are the tax consequences for all parties if Austin subsequently liquidates Travis as part of the plan of reorganization?
e. As part of the reorganization, Austin exchanges $1 million of its 7% bonds for $1 million Travis 7% bonds held equally by ten private investors.