Discuss the immediate income tax consequences

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Problem - Puce has two individual shareholders, Abram and Carmella. The share- holders purchased their stock in Puce four years ago at a cost of $500,000 each. For the past nine years, Puce has been engaged in two lines of business, manufacturing and wholesale distribution. Puce also owns substantial investments that it has held for at least six years.

For liability protection, Puce would like to segregate its businesses by placing wholesale distribution into one corporation and manufacturing into another corporation. Puce would distribute the stock of the new corporations to its shareholders, and Puce would retain only the investment assets.

Required -

a. Discuss the immediate income tax consequences of the proposed transaction.

b. As Puce's tax adviser, how would you structure the transaction?

c. Draw a diagram of your proposed reorganization and its results.

Reference no: EM132646934

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