4. (5 pts). X Corp has four shareholders (A, B, C, D) each of which owns 25% of the 1,000

shares of the common voting stock outstanding. X is worth $6M and decides to redeem

B completely, distributing $1.5M to B in exchange for all of his X stock. Xs current E&P

for the year of the redemption is $2.5M. X has no accumulated E&P. Bs basis in his X

stock was $300K.

a. What are the tax consequences to B and X? To the remaining shareholders?

b. What if instead of cash, X distributed property (basis = $250K; FMV = $1.5M) to

redeem Bs stock?