Spoonbill Corporation has assets with a FMV of $800,000 and adjusted basis of $600,000. It has been manufacturing engineering equipment and laboratory tools for the last 8 years. Spoonbill forms a new corporation, Roseate Corporation, by acquiring all of its stock in exchange for the laboratory tool division of Spoonbill. Each of the Spoonbill shareholders receives 1 share of Roseate stock for each 50 shares they own in Spoonbill. How will this transaction be treated for Federal income tax purposes?

Question

Quizplus · Accepted Answer

This transaction is treated as a spin-off "Type D" reorganization because Spoonbill is transferring a portion of its assets to a newly formed corporation in exchange for all of its stock. The shareholders of Spoonbill will receive stock in the newly formed Roseate Corporation in exchange for their stock in Spoonbill. Since this is a Type D reorganization, no gain or loss is recognized by Spoonbill or its shareholders.

Spoonbill Corporation Has Assets with a FMV of $800,000 and Adjusted