Happy Corp. owns a subsidiary corp, Summer, and Summer's FMV is 2000. Happy also owns 70% of Big Corp(stock's FMV is $5000, Happy's basis is $2000). Happy's FMV, not include its ownership of Big, is $2000 and Happy's E&P is $10000. Assume Winter Corp would like to purchase Happy Corp's shares of Big stock.

Happy corp distributes all Summer stock to Happy's shareholders in exchange for the same value of Happy's stocks. Happy's shareholders then sell their remaining stocks in Happy (which continues to own Big's stock) to Winter in exchange for cash.

What tax rule can be applied here, and what's the tax consequence for Happy corp and Happy's shareholder?