Problem 20-35 (LO. 2)

On April 23, 2019, Auk Corporation acquires 100% of the outstanding stock of Amazon Corporation (E & P of $750,000) for $1,200,000. Amazon Corporation has assets with a fair market value of $1,400,000 (basis of $800,000), no liabilities, and no loss or tax credit carryovers. Auk Corporation files a timely 338 election. Assume that both the aggregate deemed sale price (ADSP) and adjusted grossed-up basis (AGUB) are $1,306,329.

If an amount is zero, enter "0". If required, round your answers to the nearest dollar.

a. What are the tax consequences of the 338 election to Amazon Corporation and to Auk Corporation?

Amazon Corporation is deemed to have sold its assets which results in a realized gain of $ ??

of which

$ ??

recognized. Amazon is treated as a new corporation with E & P $

0 (correct).

Amazon Corporation now has a basis of $

??

in the assets, and its holding period in the assets begin on April 24, 2019 .

Auk Corporation has a recognized gain of $

0 (correct)

and its basis in the Amazon Corporation stock is $

??

.

b. Assume that Amazon Corporation is liquidated immediately following the 338 election. What are the tax consequences of the liquidation to Amazon Corporation and to Auk Corporation?

Amazon Corporation recognizes no gain or loss of $

0 (correct)

on the liquidating distribution of assets to Auk Corporation.

Auk Corporation recognizes no gain or loss of $

0 (correct)

on the receipt of the assets in liquidation of Amazon Corporation. Auk's basis in the assets is $

??

and the holding period for the assets begin on April 23, 2019 .