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 eight 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?
A) As a split-off "Type D" reorganization.
B) As a spin-off "Type D" reorganization.
C) As a spit-up "Type D" reorganization.
D) This transaction is treated as a stock dividend.

Question

Quizplus · Accepted Answer

This transaction is treated as a spin-off "Type D" reorganization because Spoonbill Corporation is distributing the shares of a newly formed corporation (Roseate Corporation) to its existing shareholders in proportion to their current shareholding, without the shareholders surrendering any of their Spoonbill shares. This allows the shareholders to receive shares in the new corporation while maintaining their interest in the original corporation, fitting the definition of a spin-off.

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