Question
3. On 4/15/X2, Frank and seven individuals formed R corporation and each received the following number of shares of R co. voting stock: Franks Father
3. On 4/15/X2, Frank and seven individuals formed R corporation and each received the following number of shares of R co. voting stock:
Franks Father 6,000
Franks Mother 3,000
Frank 4,000
Franks Sister 2,500
Franks Grandfather 4,000
Franks Cousin 500
Franks Wife 2,000
Franks Unrelated Friend Joe 5,500
On 10/16/X7 R co. redeemed 1000 of Franks shares for $3000, 5000 of his fathers shares, 2000 of his mothers shares and 2000 of Joes shares. Franks basis in the redeemed shares was $2500.
a. Determine how Frank will characterize the $3,000 distribution from R co.
b. Determine how Frank will characterize the $3,000 distribution from R co., if instead R co. had redeemed 1000 of Franks shares, 3000 of his fathers shares, 2000 of his wifes shares and 3000 of Joes shares.
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