Question

Section 338 Election and an Inventory Sale Zanzibar Corp., a C corporation, is part of a consolidated group, with assets consisting of inventory with a pre-transaction tax basis of $800 and value of $10,000. Zanzibar also has $800 of liabilities. Megan Miles acquires 100% of Zanzibar’s outstanding stock for $9,200, and the parties make a Sec. 338(h)(10) election. Answer the following questions:

What is Zanzibar 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?

Answer 1

The Adjusted Grossed up basis for Zanzibar Corp's is $10,000 i.e purchase price of stock of $ 9,200 increased by liabilty of $ 800.
Inventory allocated tax basis of inventory is $ 10,000 which is the fair market value of the stock.
The will be no gain realised when the inventory is sold.
Note-
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