Rocky is a party to a tax-free asset-for-stock reorganization. As part of the transaction, Rocky exchanges 100% of the Hope Corporation stock with a $40,000 basis and a $50,000 FMV for Moth Corporation stock worth $40,000 and $10,000 cash. Hope Corporation is subsequently liquidated as part of the reorganization, with Moth receiving the Hope assets and liabilities. Rocky is

Question

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In a tax-free reorganization involving an exchange of stock for stock plus "boot" (cash in this case), the recipient must recognize gain to the extent of the lesser of the realized gain or the boot received. The character of the gain (capital gain or dividend) depends on the specifics of the transaction, including the corporation's earnings and profits (E&P) and the shareholder's interest in the corporation post-transaction.

Rocky Is a Party to a Tax-Free Asset-For-Stock Reorganization