Buddy owns 100 of the outstanding shares of Binder Corporation stock. Buddy\'s b

Question

Buddy owns 100 of the outstanding shares of Binder Corporation stock. Buddy's basis in his Binder Corporation stock is $100,000. Binder Corporation is merged with Clipper Corporation in a tax-free reorganization. Buddy receives 50 shares of Clipper Stock worth $150,000 and $150,000 cash. The remaining 100 shares of Binder stock were owned by Bruce who received the same consideration for his Binder stock. Binder and Clopper have E & P balances of $250,000 and $500,000, respectively. Buddy and Bruce each own 25% of Clipper Corporation's 200 shares of stock after the reorganization. Which of the following is correct?

Buddy recognizes $200,000 as dividend income.

Buddy recognizes $200,000 as a capital gain.

Buddy recognizes $150,000 as dividend income.

Buddy recognizes $150,000 as a capital gain.

Explanation / Answer

Buddy recognizes $200000 as a capital gain

Buddy gets 50shres of clipper stock worth $150000 and $150000 cash ,totalled $300000 against of 100 of outstanding shares of binder corporation stock of $100000.

Therefore, net amount of $200000 will be Capital gain

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