Question - Spin-Off: Effect on Shareholder. In 2006, XYZ Corporation was formed by I, J, K, and L. Each contributed $50,000 for 100 shares of the corporation's stock. The corporation was established to capitalize on the public's need for exercise activities. XYZ's first transaction in 2006 was the purchase of a yoga studio. Based on the exercise craze in the late nineties, the corporation purchased all the stock of B Corporation in 2009. B Corporation sells and repairs bicycles. In 2014, XYZ purchased all the stock of F Corporation, which had manufactured a line of health food since 1986.
a. XYZ's management currently believes that it has grown too fast and consequently should divest itself of B or F. Will a spin-off of either subsidiary be non-taxable? On December 1, 2017 XYZ distributed all of its B stock pro-rata in a transaction that satisfies the requirements of section 355. Immediately after the distribution, the XYZ stock and B stock were valued at $250,000 and $60,000 respectively. In addition, XYZ distributed 13 securities pro-rata worth $25,000 (face value $30,000). I received B stock valued at $15,000 and securities worth $7,500. XYZ has $100,000 of E&P. B's net worth is $70,000.
b. State the amount of realized gain or loss, if either is recognized by I and its character.
c. What is I's basis in her XYZ stock and her stock and securities of B?