Jasmine transferred 100 percent of her stock in Woodward Company to Jefferson Corporation in a Type A merger. In exchange, she received stock in Jefferson with a fair market value of $600,000 plus $400,000 in cash. Jasmine's tax basis in the Woodward stock was $1,500,000. What amount of loss does Jasmine recognize in the exchange and what is her basis in the Jefferson stock she receives?

Question

Quizplus · Accepted Answer

In a Type A merger, no loss is recognized on the exchange of stock for stock plus cash ("boot"). The basis in the new stock is the original basis minus the cash received plus any gain recognized, which in this case is $1,500,000 - $400,000 = $1,100,000. Since no gain is recognized and the cash received does not trigger gain recognition in this context, the correct answer is no loss recognized and a basis in the Jefferson stock of $1,100,000.

Jasmine Transferred 100 Percent of Her Stock in Woodward Company