Mr. Morgan Forbes is the sole shareholder of Forbes Ltd., a Canadian controlled private corporation that is not a qualified small business corporation. The corporation was established several years ago by Mr. Forbes with an investment of $540,000. It has identifiable net assets with a fair market value of $2,640,000. The shares of his Company are acquired by a large publicly traded company, Megopolis Ltd., through the issuance of 75,000 new Megopolis shares. At the time of this business combination, the Megopolis Ltd. shares are trading at $36 per share. Indicate the tax consequences of this transaction to both Mr. Forbes and Megopolis Ltd.

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The Answer of Mr. Morgan Forbes is the sole shareholder of Forbes Ltd., a Canadian controlled private corporation that is not a qualified small business corporation. The corporation was established several years ago by Mr. Forbes with an investment of $540,000. It has identifiable net assets with a fair market value of $2,640,000. The shares of his Company are acquired by a large publicly traded company, Megopolis Ltd., through the issuance of 75,000 new Megopolis shares. At the time of this business combination, the Megopolis Ltd. shares are trading at $36 per share. Indicate the tax consequences of this transaction to both Mr. Forbes and Megopolis Ltd.

Mr Morgan Forbes Is the Sole Shareholder of Forbes Ltd