Tiny Co operates a motel business and has the following assets. ...
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Accounting
Tiny Co operates a motel business and has the following assets.
| Fair market value | Basis | |
| Tangible personal property (equipment, inventory etc.) | $20,000 | $10,000 |
| Real property (land and building) | $120,000 | $80,000 |
| Goodwill | $20,000 | $0 |
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The building is subject to a mortgage of $20,000.
Tiny Co is 100% owned by Abby, whose basis in Tiny Co is $50,000.
Pursuant to a plan, Pop Co and Tiny Co plan to enter into the following transactions: Pop Co will form a corporation, Speed Co, with $20,000 cash; Speed Co will merge into Tiny Co, with Tiny Co surviving; in exchange, Abby will receive $120,000 worth of Pop Co voting stock and $20,000 cash contributed by Pop Co.
1. Whats the characterization of the transaction and why?
2. Whats the tax treatment to Tiny Co?
3. Whats the tax treatment to Abby?
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