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Creditor's Realized and Recognized Gain in a Type A Reorg

As part of a Type A reorganization, a creditor swaps an old bond with a basis of $700 and a principal of $1000 for a new convertible bond with a value of $750 and a principal of $1,200. The low value is due to the lack of security and low coupon rate. What is the bondholder's realized and recognized gain on the reorganization? What is the basis in the convertible bond?

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Section 368(a)(1)(A) states that "In general... [for] purposes of parts I and II and this part, the term ''reorganization'' means ... a statutory merger or consolidation." Section 351(a) provides that "No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation. " However, section 361(c)(3) carves out an ...

Solution Summary

Citing references, this solution discusses a creditor's realized and recognized taxable gain on a bond swap as the result of a Type A reorganization.