Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Clip Joint is a holding company (HoldCo) with two subsidiaries, Himarge and Lowmarge. Himarge sells few products but at a very high margin, appealing to

Clip Joint is a holding company (HoldCo) with two subsidiaries, Himarge and Lowmarge. Himarge sells few products but at a very high margin, appealing to wealthy spenders. Lowmarge has a very low margin but engages in many sales. TopHat an individual owns 75% of HoldCo. She has a basis of $6,000 in her shares and has held the shares for 4 years. She feels that the emphasis on low margin business is causing Hold Cos stock to be depressed in value. She proposes that HoldCo distribute Himarge to the shareholders ratably so that each shareholder will own their proportionate amount of each company. HoldCos basis in Himarge is $50. HoldCo distributes the shares of Himarge and Top Hat receives 75 of the 100 shares of Himarge. Immediately after the distribution Top Hat's Himarge shares are worth $60,000 and her Lowmarge shares are worth $40 000.

1. How much gain or loss do the shareholders of HoldCo recognize as a result of receipt of the shares of Himarge (the total value of the Himarge shares distributed was $70,000)? [answer1]

2. If gain or loss was not recognized explain briefly why not? [answer1]

3. What is Top Hats adjusted basis in the Himarge shares received? Top Hat's adjusted basis is [answer1]

4. What is Top Hat's holding period in the Himarge shares she receives from Hold Co?

5. What are the three most common situations where an election under Section 338 may still provide a tax benefit?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

External Quality Audit Has It Improved Quality Assurance In Universities

Authors: Mahsood Shah, Chenicheri Sid Nair

1st Edition

1843346761, 978-1843346760

More Books

Students also viewed these Accounting questions