Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $532,500 plus $532,500 in cash. Simone's tax basis in the Purple stock was $287,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Question

Quizplus · Accepted Answer

Simone recognizes a gain of $532,500, which is the amount of cash received. The basis in the Plum stock she receives is her original basis in the Purple stock, which is $287,000. In a Type A merger, the gain recognized is the lesser of the gain realized or the "boot" received (in this case, cash), and the basis in the received stock is the carryover basis from the stock exchanged.

Simone Transferred 100 Percent of Her Stock in Purple Company