Racket Corporation and Laocoon Corporation Create Raccoon Corporation

question 113

Multiple Choice

Racket Corporation and Laocoon Corporation create Raccoon Corporation. Racket transfers $600,000 in assets for all of Raccoon's common stock. Racket distributes its remaining assets $300,000) and the Raccoon common stock to its shareholder, Mia, for all her stock in Racket basis $950,000) and then liquidates. Laocoon receives all the Raccoon preferred stock for its $400,000 of assets. Laocoon distributes its remaining assets $300,000) and the Raccoon preferred stock to its shareholder, Carlos, for all his stock in Laocoon basis $200,000) and then liquidates. How will this transaction be treated for tax purposes?

• A) This qualifies as a "Type A" reorganization. Mia recognizes no gain or loss, but Carlos recognizes $300,000 gain.
• B) This qualifies as a "Type C" reorganization. Mia and Carlos recognize $300,000 gain, to the extent of the boot.
• C) This qualifies as a "Type D" reorganization. Neither Mia nor Carlos recognizes a gain or loss.
• D) This is a taxable transaction. Mia recognizes $50,000 loss and Carlos recognizes $500,000 gain.

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Definitions:

Lewis Dot Structure

A diagrammatic method for representing an atom's valence electrons and the chemical bonds between atoms within a molecule.

Helium (He)

A colorless, odorless, tasteless, non-toxic, inert monatomic gas with the atomic number 2, making it the second lightest and second most abundant element in the observable universe.

Lewis Dot Structure

A representation of the valence electrons around atoms, indicating bonds and lone pairs in molecules.

Calcium (Ca)

A soft gray alkaline earth metal, represented by the symbol Ca, essential for living organisms, particularly in cell physiology and bone formation.