Sid Kess, a long-time tax client of yours, has decided to acquire the snow blower manufacturing firm owned by Richard Smith, one of his closest friends. Richard has a $200,000 adjusted basis in his Richard Smith Snow Blowers (RSSB) stock. Sid Kess Enterprises (SKE), a C corporation 100%-owned by Sid Kess, will make the acquisition. RSSB operates as a C corporation and reports the following assets and liabilities as of November 1 of the current year.

RSSB has claimed depreciation of $200,000 and $80,000 on the equipment and building, respectively, and has claimed no amortization on the goodwill. Retained earnings approximate RSSB's E&P. No NOL, capital loss, or credit carryovers exist at the time of the acquisition. What are the tax consequences of each alternative acquisition transaction to SKE and RSSB? Assume a 21% corporate tax rate.

a. SKE acquires all the single class of RSSB stock for $1.56 million in cash. RSSB is not liquidated.

b. SKE acquires all the noncash assets of RSSB for $1.54 million in cash. RSSB is liquidated.

c. SKE acquires all the RSSB stock for $1.56 million in cash. RSSB is liquidated into SKE shortly after the acquisition.

d. SKE acquires all the RSSB stock for $1.56 million in cash. SKE makes a timely Sec. 338 election. Assume that RSSB's corporate tax rate is 21%.

e. SKE exchanges $1.54 million of its common stock for all of RSSB's noncash assets ($1,540,000 = $1,740,000 total assets- $200,000 cash). SKE has 10,000 shares of stock outstanding with a $3 million FMV before the acquisition. RSSB liquidates as part of the transaction. RSSB uses part of the retained cash to pay off the corporation's liabilities. The remaining cash is distributed along with the SKE stock in the liquidation of RSSB.

f. SKE exchanges $1.56 million of its common stock for all of Richard Smith's RSSB stock. Assume that RSSB does not liquidate. Each share of SKE stock has a $300 FMV. 

g. Assume the same facts as in Part d except SKE transfers $1.56 million of its common stock to SKE-Sub. In the transaction, SKE-Sub is the acquiring corporation and uses $1.56 million of the SKE stock to acquire RSSB's stock.

h. Assume the same facts as in Parte except SKE transfers $1.54 mill ion of its common stock to SKE-Sub. In the transaction, SKE-Sub is the acquiring corporation and uses $1.54 million of the SKE stock to acquire RSSB's noncash assets.

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Adjusted Basis Assets FMV $ 200,000 470,000 100,000 200,000 80,000 -0- $ 200,000 600,000 275,000 295,000 120,000 250,000 Cash Inventory (LIFO) Equipment Building Land Goodwill Total $1,050,000 $1,740,000 Liabilities and Equity Accounts payable Mortgage payable Paid-in capital Retained earnings Атоunt $ 60,000 120,000 220,000 650,000 Total $1,050,000