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DC (a public company) owns CFC, which has $200 of good earnings (earnings not from...

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Accounting

DC (a public company) owns CFC, which has $200 of good earnings (earnings not from subpart F income). Let's say that CFC has $200 of cash from the $200 earnings.

(a) What is the result if CFC used its $200 of earnings to purchase $200 of DC stock from the public?

(b) What is the result if CFC forms a new CFC2 in the Bahamas and transfers the $200 to CFC2 in a section 351 exchange and then CFC2 purchases the DC stock? Assume that CFC2 has no earnings for its first year.

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