The Long Corporation has $500,000 of assets with a basis of $350,000 and liabilities of $125,000. ShortCo acquires Long's assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for her Long stock with a basis of $275,000 and then it liquidates. Which, if any, of the following statements is correct?
A)This restructuring qualifies as a "Type A" reorganization with no recognized gains or losses.
B)This restructuring qualifies as a "Type C" reorganization with no recognized gains or losses.
C)This qualifies as either a "Type A" or "Type C" and the shareholder has a $25,000 recognized gain.
D)The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
E)None of the above statements is correct.

Question

Quizplus · Accepted Answer

This restructuring qualifies as a "Type C" reorganization because ShortCo acquires substantially all of Long's assets in exchange for its voting stock and assumes some liabilities, with no recognized gains or losses.

The Long Corporation Has $500,000 of Assets with a Basis