In 2009, Celia Mueller bought a $1,000 bond issued by
Disco Corporation for $1,100. Instead of paying off the bondholders
in cash, Disco issued 100 shares of preferred stock in
2012 for each bond outstanding. The preferred stock had a fair
market value of $15 per share. What is the recognized gain to be
reported by Mueller in 2012?

(a) The requirement is to determine the recognized
gain to be reported by Mueller on the exchange of her Disco
bond for Disco preferred stock. The issuance by Disco Corporation
of its preferred stock in exchange for its bonds is a nontaxable
“Type E” reorganization (i.e., a recapitalization). Since
Mueller did not receive any boot, no part of her $400 realized
gain is recognized.