Jakub and Sylvia propose to have their corporation, Wolverine Universal (WU), acquire another corporation, EMU Inc., in a stock-for-stock Type B acquisition. The sole shareholder of EMU, Edie Eagle, will receive $400,000 of WU voting stock in the transaction. Edie’s tax basis in the EMU stock is $100,000.
a) What amount of gain or loss does Edie recognize if the transaction is structured as a stock-for-stock Type B acquisition?
b) What is Edie’s tax basis in the WU stock received in the exchange?
c) What is the tax basis of the EMU stock held by WU after the exchange?