Problem
On January 1, 2015, Julio formed Java Corporation and acquires all 1,000 shares of the corporation for cash of $500,000. The corporation has never issued any additional shares.
On July 1, 2020, Pinnacle Corporation acquires all of Julio's stock in Java Corporation for cash of $15,000,000. Assume that Java has at all times been engaged in the business of computer hardware development, has had no passive income and has met all requirements of Section 1202.
1. What are the tax consequences to Julio?
2. What would happen if pinnacle wants make an election under 338(g) to treat the stock purchase as an asset purchase?
3. What are the tax consequences to Julio if instead of selling the stock of java, the stock becomes worthless during 2020?