Johnny, an Australian tax resident, wholly owns JW Pty Ltd (an Australian Pty Ltd treated as a corporation for US tax purposes). JW Pty Ltd wholly owns KZ Inc. and KZ Inc.’s sole asset is an apartment building located in Boise, ID. Boise Real Estate Inc., an unrelated party, approached JW Pty Ltd with an offer to purchase 100% of the shares in KZ Inc. for $2,000,000. JW Pty Ltd’s cost basis in its KZ Inc. shares is $1,500,000.

Write 2 to 3 sentences for each of the questions below.

a. Explain in detail what the US tax consequences are, if any, to JW Pty Ltd.

b. Explain the tax policy behind your answer to (a).

c. Would you answer change if Johnny sold his JW Pty Ltd shares to Boise Real Estate Inc. (instead of JW Pty Ltd selling the shares in KZ Inc.)? Why?

d. Would Boise Real Estate Inc. have a preference on which shares it acquired? Explain why.