1. Whale Corp acquires the assets of Minnow Corp for $100,000 (FMV) of Whale Corp voting stock. Minnow’s assets have a fair market value of $100,00 (adjusted basis of $20,000) and Minnow has no liabilities. Immediately after the transaction Minnow liquidates giving its shareholder Gilligan the Whale stock. Gilligan’s basis in Minnow was $15,000.
a) Is Whale taxed on the transfer of its stock to Minnow? Explain briefly.
b) Is minnow taxed on receipt of the Whale stock? Explain briefly
c) Is Gilligan taxed on receipt of the Whale stock? Explain briefly
d) What is the basis of the Whale shares to Gilligan? Explain briefly.
e) What is the basis of minnow’s assets in the hands of Whale?
f) Minnow had earnings and profits of $300,000 prior to the transaction. What happens to them?
g) Is Gilligan taxed (and if so what is the recognized gain) If Whale used $90,000 of stock and $10,000 of cash instead of just Whale stock?
2. What if Minnow from the previous question is merged into Whale in exchange for $35,000 of Whale stock, and $65,000 of cash which are transferred to Gilligan after Minnow goes out of existence
a) Does Gilligan recognize any gain or loss on the transaction, if so what is the amount and the character of any gain or loss?
b) What is Gilligan’s basis in the Whale stock he received?