Alan, Barbara, and Dave are unrelated. Each has owned 100 shares of Time Corporation stock for five years and each has a $60,000 basis in those shares. Time’s E&P is $240,000. Time redeems all 100 of Alan’s shares for their $100,000 FMV.
a. What are the amount and character of Alan’s recognized gain or loss? What basis do Barbara and Dave take in their remaining shares? What effect does the redemption have on Time’s E&P?
b. If Alan were Barbara’s son, how would your answers to the questions in Part a change?
c. Assume the same facts as in Part b except Alan agrees with the IRS to waive the family attribution rules. Based on this assumption, how would your answers to the questions in Part a again change?