A shareholder bought 2,000 shares of Zee Corporation for $90,000 several years ago. When the stock is valued at $200,000, Zee redeems these shares in exchange for 6,000 shares of Yea Corporation stock. This transaction meets the requirements of § 368. Which of the following statements is true with regard to this transaction?

Question

Quizplus · Accepted Answer

The shareholder has a postponed gain of $110,000. This is because the redemption is a qualifying transaction under § 368 and therefore the shareholder can defer recognition of the gain until they dispose of the Yea stock. The shareholder's basis in the Yea stock would be equal to the value of the Zee stock at the time of the redemption ($200,000).

A Shareholder Bought 2,000 Shares of Zee Corporation for $90,000