Target Corporation is merging into Acquiring Corporation under state law requirements.Target has 3,000 shares outstanding,with a value of $100 per share.Joey,one of Target's shareholders,exchanges his 500 Target shares,for which he paid $80 per share,for 1,000 shares of Crow stock,valued at $30 per share,and $5,000 cash.Acquiring owns 40% of Crow stock.How does Joey treat this transaction for tax purposes?

Question

Quizplus · Accepted Answer

This is a taxable transaction because Joey received no stock in Acquiring in exchange for his stock in Target.Acquiring's ownership of Crow is an investment.Thus,Crow is not a party to the reorganization.500 F1F1F1S1F1F1F10 $80 = $40,000 basis - $30,000 Crow stock - $5,000 cash = $5,000 loss for Joey.

Target Corporation Is Merging into Acquiring Corporation Under State Law