Light Corporation is owned equally by two individual shareholders, Bev and Tarek. The shareholders no longer agree on how to manage Light’s operations. Tarek agrees to a plan whereby $500,000 of Light’s assets (having an adjusted basis of $350,000) and $100,000 of Light’s liabilities are transferred to Dark Corporation in exchange for all its single class of stock (5,000 shares). Tarek will exchange all his Light common stock, having a $150,000 adjusted basis, for the $400,000 of Dark stock. Bev will continue to operate Light.
a. What is the amount of Light’s recognized gain or loss on the asset transfer? On the distribution of the Dark stock?
b. What are the amount and character of Tarek’s recognized gain or loss?
c. What is Tarek’s basis in his Dark stock?
d. What tax attributes of Light will be allocated to Dark?