1. What are the tax consequences of this merger to Target Corporation and its shareholders and Acquiring Corporation and its shareholders?
2. The stock of Target Corporation is owned equally by four individuals -- Alice, Ben, Cathy, and David and their adjusted basis in the Target stock are $390,000, $870,000, $1,190,000 and $660,000, respectively.Target's assets consist of the following: Cash $200,000; Inventory $2,000,000 (AB $1,400,000); Land $1,800,000 (AB $2,100,000).Pursuant to the laws of the State of Iowa, Target is merged into Acquiring Corporation pursuant to a plan whereby each shareholder of Target, other than David, is to receive solely the stock of Acquiring Corporation and David is to receive $250,000 of Acquiring Corp stock and $750,000 of cash. Acquiring Corporation is a publicly traded company whose assets, net of liabilities, are valued at $800 million.