Here is a set of facts about the pending acquisition of Baja, Inc. (the target), by Calstar,

Question:

Here is a set of facts about the pending acquisition of Baja, Inc. (the target), by Calstar, Inc. (the acquirer).
• Baja, Inc., is owned by Smith and Calegari. Smith owns 30% of Baja’s and has a basis in his Baja, Inc. stock of $ 10. Calegari owns the remaining 70% of Baja stock and has a basis in his stock of $ 1,000.
• Calstar, Inc., wants to acquire Baja and is willing to pay $ 100,000.
• Calstar’s outstanding is currently worth $ 50,000. Calstar management owns approximately 45% of the currently outstanding common stock.
• Baja possesses valuable patents, licenses, and other that cannot be sold and has as-sets with titles that are nontransferable.
• Baja does not have substantial .
• Calegari will not sell unless he receives only cash for his Baja stock.
• Smith will not sell unless he receives consideration that is tax- free.
• Calstar’s management will not purchase Baja with its common stock, which would significantly re-duce its voting control. What acquisition structure would you recommend for this transaction (please mention the U. S. Tax Code section)? Diagram the structure and provide details and description as necessary. Be concise.
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