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A owns all the stock of T Corp The only asset of T Corp is land worth $150,000 with a basis of $60,000 A’s basis in T’s stock is $50,000 T Corp is a C Corporation for federal income tax purposes Y Corp, a publicly traded company, wishes to purchase the land with either $150,000 of Y Corp stock in a taxable transaction or $130,000 of Y Corp stock in a non-taxable transaction
A) Can A avoid gain recognition by a like kind exchange of T Corp stock for Y Corp stock?
B) Can you think of any scenario in which the transaction could be tax-free?
C) What would be the tax ramifications if T Corp accepts the taxable transaction, and immediately liquidates? The effective tax rate for T Corp is 20% and for A is 35% for ordinary income and 15% for capital gains
D) Would you answer to C be different if T Corp was an S Corporation?
E) Why is Y Corp willing to give only $130,000 worth of stock for a tax-free exchange?