T is an operating company with assets worth $1000 (basis $700) and no liabilities. T has $300 E&P. A owns some or all of the outstanding common stock of T, its only class, as stated in the various problems below. P is a publicly held operating company. Ignore the effect of tax on any gain recognized by T and assume T stock is worth $10 per share. Assume the existence of a good business purpose for the transactions, continuity of T’s business enterprise and a plan of reorganization where necessary (though the time boundaries of the plan may be at issue).

In each of the following transactions, what are the tax consequences to each of the parties?

2. P owns 20% of the T stock (acquired 10 years ago for $100) and A owns 80% (basis $200). T transfer all its assets to P solely for $1000 FMV of P voting stock, after which time T liquidates.

3. B owns 20% of T stock (basis $10), and A owns the rest. B contributes the 20% stock interest to newly formed S for pure preferred S stock, while P contributes $800 cash to S for all of S’s common stock. T then merges into S, with A receiving $800 cash and all T stock being canceled.

4. P owns 80% of T’s outstanding stock, which P acquired 10 years ago (basis $200), and A owns 20% (basis $100). T transfers all its assets to P solely for $1000 FMV of P voting stock, after which T liquidates.

Answer rating: 100% (QA)

2In this transaction T will recognize a gain of 300 1000 700 due to the transfer of its assets to P However T will not recognize any gain or loss on the exchange of its assets for Ps voting stock P wi... View the full answer