Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer?

Question

Quizplus · Accepted Answer

Both Broom and Docker Corporations do not recognize any gain on the transfer because the transfer is part of a tax-free reorganization. The basis of the Docker Corporation stock to Broom Corporation is $400,000 (the FMV of the assets transferred) and the basis of the assets to Docker Corporation is also $400,000. Therefore, there is no gain or loss recognized on the transfer by either corporation.

Broom Corporation Transfers Assets with an Adjusted Basis of $300,000