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ID: 2549552 • Letter: I
Question
IMG_5525.PNG - Photos - 2 Share 6 & x ... W See all photos 9 Add to a creation % Edit & Create v E. Z. Duh Zit Corp makes a cream tha well as common and preferred stock. Individual Aldo owns ST.000) that pays interest at 6%, and also owns 400 shares 10,000). What are the tax consequences to Aldo if he engages in transactions (treat cach transaction as if it were the only tra the company that allows these transactions: al blemishes. It has long term bonds outstanding CK. Individual Aldo owns a $1,000 bond (adjusted basis d also owns 400 shares of common stock (adjusted basis Aldo if he engages in the following independent on as it were the only transaction) pursuant to a plan adopted by a) Aldo exchanges his bond for 100 shares of common stock. b) Aldo Cacha do exchanges his original 400 shares of common stock 00 shares of common stock for 200 shares of Preferred Stock. No c) Aldo exchanges his 400 shares of common stock (worth $100,000) for a $100,000 bond paying interest at 6%. Whale Com acauires the st O Type here to search 0 o i e la, suon ann (TMV of Whale Corp voting so x3 W A D d d d 3/22/2018 Y 0 c wa 1:07 PM 9 P3 IExplanation / Answer
A. No gain is recognized if bonds are exchanged for common stock in a coompany as the same amounts to reorganization of capital structure in eyes of IRS as per section 368. Therefore, no tax will be leviable.
B. As per section 1036 of IRS, no gain or loss is required to be recognized if a voting stock is exchanged for non voting stock in the company or a of common stock for common stock, or of preferred stock for preferred stock, in the same corporation. Therefore, no tax is levied on exchange of common stock for preferred stock.
C. Section 1036 does not apply in case exchange of shares for bonds and therefore the same will be liable to capital gains. IN the given case capital will be $90,000 (100,000 - 10,000).