Jamie transferred 100 percent of her stock in Fox Company to Otter Corporation in aType A merger. In exchange, she received stock in Otter with a fair market value of$400,000 plus $600,000 in cash. Jamie's tax basis in the Fox stock was $600,000. What amount of gain does Jamie recognize in the exchange and what is her basis in the Otter stock she receives?

Question

Quizplus · Accepted Answer

Jamie recognizes a gain to the extent of the cash received, which is $600,000 (cash) - $600,000 (basis) = $0 gain recognized. However, the recognized gain is limited to the cash received, which is $400,000. Her basis in the Otter stock is her original basis in Fox stock ($600,000) minus the cash received ($600,000), resulting in a basis of $400,000 in Otter stock.

Jamie Transferred 100 Percent of Her Stock in Fox Company