Carlos Purchased 20% of Target Corporation's Stock Five Years Ago

question 64

Multiple Choice

Carlos purchased 20% of Target Corporation's stock five years ago for $50,000.In a transaction qualifying as a "Type A" reorganization,Carlos received $40,000 cash and 6% of Acquiring Corporation's stock (valued at $60,000) in exchange for his Target stock.Target had $300,000 accumulated earnings and profits prior to the reorganization.How does Carlos treat the exchange for tax purposes?

• A)As a sale of stock and recognizes a $50,000 long-term capital gain.
• B)As a sale of stock and recognizes a $10,000 long-term capital loss.
• C)As a dividend of $40,000.
• D)As a stock redemption and recognizes a $40,000 long-term capital gain.
• E)Not enough information is available to determine proper treatment.