Question: Ruby Corporation has 100 shares of common stock outstanding. Fred, a shareholder of Ruby, exchanges his 25% interest in the Ruby stock for Garnet Corporation

Ruby Corporation has 100 shares of common stock outstanding. Fred, a shareholder of Ruby, exchanges his 25% interest in the Ruby stock for Garnet Corporation stock and securities. Ruby purchased 80% of the Garnet stock ten years ago for $25,000. At the time of the exchange, Fred has a $50,000 basis in his Ruby stock, and the stock has an $80,000 FMV. Fred receives Garnet stock that has a $60,000 FMV and Garnet securities that have a $20,000 FMV. Ruby has $50,000 of E&P. Assume that all the requirements of Sec. 355 are met except with respect to the receipt of boot.

a. What are the amount and character of Fred's recognized gain or loss in the exchange?

b. What is Fred's basis in the Garnet stock and the Garnet securities?

c. What are the amount and character of Ruby's recognized gain or loss on the distribution?

d. When does Fred's holding period begin for the Garnet stock and the Garnet securities?

e. How would your answers to Part a change if the exchange did not meet the requirements of Sec. 355 or Sec. 356?

Ruby Corporation has 100 shares of common stock outstanding. Fred,

Division FMV Assets Adjusted Basis Cookware S980,000 S600,000 Home appliances 420,000 300,000

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a 20000 gain recognized calculated as follows FMV of Garnet stock 60000 Plus FMV of Garnet security 20000 Amount realized 80000 Minus Basis of Ruby st... View full answer

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