. Four individuals B, C, D, and E each own 25 percent of Wayne Corporation. B and C each have an adjusted basis of $10,000 in the Wayne Corporation's stock and D and E have an adjusted basis of $30,000 and $60,000 respectively. Wayne Corporation is merged into State Corporation in a statutory merger that qualifies under IRC Section 368(a)(1). Because B objected she was paid in cash in the amount of $50,000 for her entire stockholding in Wayne Corporation. The remaining shareholders each received stock in State Corporation with a fair market value of $50,000. Wayne Corporation was liquidated soon after the merger. On the date of liquidation Wayne had unused net operating losses of $100,000 and unused business credits of $40,000.

1. What are the amount and character of the gain that must be recognized by each shareholder?

2. What is the basis of the stock in the State Corporation for those shareholders who

received State Corporation's stock (10)?