The Long Corporation Has $500,000 of Assets with a Basis

question 59

Multiple Choice

The Long Corporation has $500,000 of assets with a basis of $350,000 and liabilities of $125,000. ShortCo acquires Long's assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for her Long stock with a basis of $275,000 and then it liquidates. Which, if any, of the following statements is correct?

• A)This restructuring qualifies as a "Type A" reorganization with no recognized gains or losses.
• B)This restructuring qualifies as a "Type C" reorganization with no recognized gains or losses.
• C)This qualifies as either a "Type A" or "Type C" and the shareholder has a $25,000 recognized gain.
• D)The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
• E)None of the above statements is correct.

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Definitions:

Financial Burden

The heavy financial strain or stress placed on an individual or organization due to expenses or debt.

Superfund

A United States federal law designed to fund the cleanup of sites contaminated with hazardous substances and pollutants.

Solid Waste Disposal

The process of managing, treating, and disposing of solid waste materials generated by households, businesses, and industries.

Primary Responsibility

The foremost duty or obligation assigned to a person or entity.