Mary Li owns 100 shares of common stock of Free Corporation with a basis of $1,000 ($10 per share) and a value of $10,000 ($100 per share.) She receives a distribution of 100 stock rights to acquire 100 Free Corporation nonconvertible preferred shares. After the distribution, the value of the common stock was $90 per share and the value of each stock right was $10 per right. Free Corporation has billions of E&P.

Is the distribution taxable to Mary?

What is Marys basis in the stock rights?

Explain your answers, citing authority.