Spoonbill Corporation has assets with a FMV of $800,000 and adjusted basis of $6

Question

Spoonbill Corporation has assets with a FMV of $800,000 and adjusted basis of $600,000. It has been manufacturing engineering equipment and laboratory tools for the last 8 years. Spoonbill forms a new corporation, Roseate Corporation, by acquiring all of its stock in exchange for the laboratory tool division of Spoonbill. Each of the Spoonbill shareholders receives 1 share of Roseate stock for each 50 shares they own in Spoonbill. How will this transaction be treated for Federal income tax purposes?

a. This transaction is treated as a stock dividend. b. As a spin-off "Type D" reorganization. c. As a split-off "Type D" reorganization. d. As a spit-up "Type D" reorganization. e. None of these choices are correct.

Explanation / Answer

In a spin-off the distributing corporation transfers some of its assets to a new corporation in exchange for its stock. New corporation stock is transferred to the distributing corporation’s shareholders.

so the answer is b) As a spin-Off" Type D" reorganization

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