Harrison Corporation, a C corporation, is part of a consolidated group, with assets consisting of inventory with a pre-transaction tax basis of $3,200 and value of $40,000. Harrison also has $3,200 of liabilities. Debra Smith acquires 100% of Harrison's outstanding stock for $36,800, and the parties make a Sec. 338(h)(10) election. Prepare a letter to Debra that answers the following questions:

1. What is Harrison Corp.'s adjusted grossed-up basis (AGUB)?

2. What is the inventory's allocated tax basis?

3. How much gain will be realized when the inventory is sold?

Include your calculations in a memo or attach a spreadsheet showing your calculations.

Reference:

Young, J.C., Nellen, A., Maloney, D.M. (2023). South-Western federal taxation 2023: Comprehensive. (46th ed.). Cengage Learning. ISBN-13- 9780357719688