Chucky Chester Inc. takes over Billy Bob Burgers from Billy himself for $1 million in cold cash. Billy started the company years ago on an investment of $50,000 in plant and equipment which has long been paid off. The machinery has no accounting value today. Consider the takeover price as fair market value for the equipment. Calculate the tax consequences of the merger, assuming that Chucky Chester decides not to write-up the machinery. Both Billy and Chucky are in the 28% tax bracket.

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The Answer of Chucky Chester Inc. takes over Billy Bob Burgers from Billy himself for $1 million in cold cash. Billy started the company years ago on an investment of $50,000 in plant and equipment which has long been paid off. The machinery has no accounting value today. Consider the takeover price as fair market value for the equipment. Calculate the tax consequences of the merger, assuming that Chucky Chester decides not to write-up the machinery. Both Billy and Chucky are in the 28% tax bracket.