6. Purple Corporation is acquiring Gray Corporation in a transaction that qualities as a 368...
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6. Purple Corporation is acquiring Gray Corporation in a transaction that qualities as a 368 reorganization by exchanging $650,000 of stock and three parcels [(Parcel1 FMV $350,000 Basis $50,000); (Parcel 2 FMV $250,000 Basis $100,000); (Parcel 3 FMV $400,000 Basis $275,000] for all of Grays assets (Stock-$450,000 and land (FMV of $500,000 and basis of $350,000) and liabilities of $175,000. Gray also has 200,000 of Earnings & Profits. Gray sells both parcels for its FMV and uses proceeds to compensate employees who are losing their jobs. Gray then liquidates transferring parcel 3 and the stock received to its shareholders. Use the format below to determine thetax consequences of the reorganization to all parties (the acquiring corporation,the target corporation and the shareholders ofGray Corporation)?
Acquiring Corp Target Corp Shareholders
Stock L1 Basis L 2 Basis L3 Basis Stock FMV Basis E&P Liability New Old
Realize Gain Realize Gain Shareholders Realized Gain
Recognize Gain Recognize Gain Shareholders Recognize Gain
Basis Basis Basis
Character of Gain to Target Character of Gain To Shareholder
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