Question
ABC Corp issues stock warrants to its shareholders. Mary owns 2,500 shares of stock and receives 2,500 warrants. Marys basis in her shares is $30,000
ABC Corp issues stock warrants to its shareholders. Mary owns 2,500 shares of stock and receives 2,500 warrants. Mary’s basis in her shares is $30,000 and their FMV is $100,000. The warrants give Mary the option to purchase the shares at $100 per share. The FMV of each warrant is $2. Mary has held her shares for 5 years. Mary sells 700 of her warrants for $2,800 and she exercises the remaining 800 warrants.
A. What are the results to Mary if the distribution was taxable?
B. What are the results to Mary if the distribution was tax-free? What are Mary’s choices, if any?
Step by Step Solution
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A If the distribution of stock warrants is taxable Mary would need to recognize taxable income equal to the fair market value of the warrants received ...
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South Western Federal Taxation 2015 Essentials Of Taxation Individuals And Business Entities
Authors: James Smith, William Raabe, David Maloney, James Young
18th Edition
9781285438290, 1285439740, 1285438299, 978-1285439747
