Norris Corporation is considering the purchase of all of LaGuardia Corp. stock. LaGuardia has a basis in its assets of $1,000,000. The FMV of the assets is $5,000,000. Norris proposes to purchase the stock for $5,000,000 and then to liquidate LaGuardia under 332. LaGuardia has a deficit in E&P in the amount of $400,000.

a. What is the realized and recognized gain to LaGuardia Corp. if Norris purchases the stock and makes a 338 election? b. What will Norris basis be in the LaGuardia assets after the liquidation? What basis would Norris have in the assets if it had not elected 318? c. What happens to La Guardias deficit in E&P after the election and liquidation?