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

In a tax-free reorganization, the transfer of 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 does not result in the recognition of gain or loss for both Broom and Docker Corporations. The fact that the Docker stock had been purchased from its shareholders one year earlier for $350,000 is irrelevant in determining the gain or loss recognition. Therefore, no gain is recognized by either corporation.

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