Mae and Vernon are equal owners of Denson, Inc., an S corporation. Denson owns 5,000 shares of

Question:

Mae and Vernon are equal owners of Denson, Inc., an S corporation. Denson owns 5,000 shares of stock in Cowboy Country. Denson paid $300,000 for the Cowboy Country stock, which is qualified small business stock. During the current year, Denson sells 4,000 shares of Cowboy Country for $100,000. Denson’s accountant is preparing the current-year tax return and is unsure of the reporting of the stock sale to Mae and Vernon.
Read and analyze the following authorities and determine how the sale of the stock should be reported to Mae and Vernon:
Sec. 1244.
Sec. 1363.
Reg. Sec. 1.1244(a)-1.
Virgil D. Rath, 101 T.C. 196 (1994).