Springs Corporation has developed a nature park at the site of Blue Springs. Because Newberry Corporation wants to develop several other springs in the area, Newberry wants to merge with Springs under Florida law. Newberry offers $650,000 of nonvoting preferred shares plus 1,000 shares of voting common (FMV of $50,000) to Springs in exchange for all of Springs’ assets. As part of the merger, Springs’ sole shareholder, Mr. High, exchanges all his shares in Springs for the shares in Newberry. Immediately before this transaction, Mr. High had a $240,000 basis in his Springs shares and owned no shares in Newberry. After the transaction he owns 20% of the value of the Newberry stock.
a. Does this transaction qualify as a Type A reorganization?
b. Does Springs recognize any gain or loss on the asset sale or the exchange of shares with Mr. High?
c. Does Mr. High recognize any gain or loss? What is his basis and holding period in his Newberry shares?