Option #1: Section 338 Election and an Inventory Sale
Harrison Corporation, a C corporation, is part of a consolidated group, with assets consisting of inventory with a pre-transaction tax basis of $3,200 and value of $40,000. Harrison also has $3,200 of liabilities. Debra Smith acquires 100% of Harrison’s outstanding stock for $36,800, and the parties make a Sec. 338(h)(10) election. Prepare a letter to Debra that answers the following questions:
- What is Harrison Corp.’s adjusted grossed-up basis (AGUB)?
- What is the inventory’s allocated tax basis?
- How much gain will be realized when the inventory is sold?
Include your calculations in the memo or attach a spreadsheet showing your calculations.
No hard coding of solutions. Reach out to your instructor if you have questions about the assignment.