5. Bobcat Corporation redeems all of Zeds 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $60,000 cash. Zeds basis in his 20% interest in Bobcat is $100,000 and the stocks value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $150,000. How does Zed treat this transaction for tax purposes?

a. No gain is recognized by Zed in this reorganization.

b. Zed reports a $50,000 recognized dividend.

c. Zed reports a $40,000 recognized dividend and a capital gain of $40,000.

d. Zed reports a $30,000 recognized dividend and a $30,000 capital gain.

e. Not enough information is available to determine proper treatment.

6. Purple Corporation is acquiring Gray Corporation in a transaction that qualities as a 368 reorganization by exchanging $650,000 of stock and two parcels [(Parcel 1 FMV $350,000 Basis $50,000); (Parcel 2 FMV $250,000 Basis $100,000)] for all of Grays assets (Stock-$450,000 and other (FMV of $500,000 and basis of $350,000) and liabilities of $175,000. Gray also has 200,000 of Earnings & Profits. Gray sells both parcels it receives from Gray for its FMV and uses proceeds to compensate employees who are losing their jobs. Gray then liquidates, transferring the stock received to its shareholders. What are the tax consequences of the reorganization to all parties (the acquiring corporation, the target corporation and the shareholders of Gray Corporation)?

Acquiring Corp Target Corp Shareholders

Stock Land 1 Basis Land 2 Basis Stock FMV Basis E&P Liability New Old

Realize Gain Realize Gain Shareholders Realized Gain

Recognize Gain Recognize Gain Shareholders Recognize Gain

Basis Basis Basis

Character of Gain to Target Character of Gain to Target Character of Gain To Shareholder