Juan transferred 100 percent of his stock in Rosa Company to Azul Corporation in a Type B stock-for stock exchange. In exchange, he received stock in Azul with a fair market value of $1,000,000. Juan's tax basis in the Rosa stock was $400,000. What amount of gain does Juan recognize in the exchange and what is his basis in the Azul stock he receives?

Question

Quizplus · Accepted Answer

In a Type B reorganization, no gain or loss is recognized by the shareholder, and the basis in the new stock received is the same as the basis in the old stock. Therefore, Juan recognizes no gain and his basis in the Azul stock is $400,000.

Juan Transferred 100 Percent of His Stock in Rosa Company