Expert Solutions

Royal Appliance Inc. incorporated its service department, Servco and distributed all of the Servco stock received to Royal shareholders. Royal has been in existence for 20 years, and the stock of Servco is worth $30 a share. Jim Lewis, a 10 percent shareholder in Royal, owned 1000 shares with a basis of $20 per share and a value of $60 per share and exchanged 200 shares of Royal for 400 shares in Servco corporation.
What is Jim's recognized gain or loss, stock basis, and holding period as a result of the transaction?
What, if any, difference does it make if Royal Appliance Inc.  had been in existence for four years?