Question

Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in a Type A merger. In exchange, she received stock in Marketing with a fair market value of $500,000 plus $500,000 in cash. Celeste's tax basis in the Supply Chain stock was $1,200,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives

Answer 1

a. No loss is recognized.

b. Celeste's basis in Marketing stock is $700,000.

Step-by-step explanation:

a. What amount of loss does Celeste recognize in the exchange

Since this is a Type A merger, no loss is required to be recognized.

b. What is her basis in the Marketing stock she receives

Basis in the Marketing stock is the excess of Celeste's tax basis in the Supply Chain stock over the fair market value of stock in Marketing. This can be calculated as follows:

Basis in the Marketing stock = $1,200,000 - $500,000 = $700,000

Therefore, Celeste's basis in Marketing stock is $700,000