Principal Issues: 1. What is the transferee corporation's cost of the property it acquires from the distributing corporation? 2. What is the cost of the shares of the transferee corporation to each of its shareholders? 3. Does the divisive reorganization give rise to FAPI?
Position: 1. The fair market value of the property acquired. 2. The fair market value of the shares acquired. 3. No.
Reasons: 1. The transferee's cost will be equal to the fair market value of its shares issued to its shareholders. 2. The shareholders' cost of the shares of the transferee corporation will be equal to the fair market value of the property transferred to the transferee corporation by the distributing corporation. 3. No income arises that is described in the definition of FAPI.