Larry has 100,000 shares outstanding that are worth $10 per share. It uses 32% of its stock plus $80,000 to acquire Price Corporation in a Type A reorganization. Price’s assets are valued at $400,000 and its accumulated earnings and profits are $25,000 at the time of the reorganization. The Larry shares and cash are distributed to the Price shareholders as follows. Jake (owning 62.5% of Price) receives 18,000 shares (value $180,000) and $70,000. Kara (owning 37.5% of Price) receives 14,000 shares (value $140,000) and $10,000. Jake and Kara each recognize gains to the extent of the cash they received. What is the character of Jake’s and Kara’s gains?
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