Purple Corporation is acquiring Gray Corporation in a transaction that qualities as a 368 reorganization by exchanging $650,000 of stock and two parcels [(Parcel 1 FMV $350,000 Basis $50,000); (Parcel 2 FMV $250,000 Basis $100,000)] for all of Grays assets (Stock-$450,000 and other (FMV of $500,000 and basis of $350,000) and liabilities of $175,000. Gray also has 200,000 of Earnings & Profits. Gray sells both parcels it receives from Purple for its FMV and uses proceeds to compensate employees who are losing their jobs. Gray then liquidates, transferring the stock received to its shareholders. What are the tax consequences of the reorganization to all parties (the acquiring corporation, the target corporation and the shareholders of Gray Corporation)?

Acquiring Corp Target Corp Shareholders

Stock Land 1 Basis Land 2 Basis Stock FMV Basis E&P Liability New Old

Realize Gain Realize Gain Shareholders Realized Gain

Recognize Gain Recognize Gain Shareholders Recognize Gain

Basis Basis Basis

Character of Gain to Target Character of Gain to Target Character of Gain To Shareholder

explanation needed