Why Is the Shareholder's Basis in the New Stock Received

question 122

Multiple Choice

Why is the shareholder's basis in the new stock received in a corporate reorganization the value of the stock received less the postponed gain?

• A) This ensures that the basis is the value of the stock given up in the reorganization.
• B) The realized gain is the amount that would be recognized if the stock was sold outright. This gain may not be recognized, however, unless there is boot.
• C) The basis is the vehicle to ensure that the gain postponed will be recognized in the future when the stock is sold.
• D) A carryover basis or a substituted basis will not include the postponed gain that is necessary in a tax-deferred transaction such as a reorganization.
• E) All the above statements are true.

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