Assumptions: X is owned entirely by two individuals, A and B (who are unrelated unless otherwise stated). A owns 60 shares of X common stock (bought in one transaction for $600). B owns 40 shares of X common stock (with a basis of $30 per share). The stock's FMV is $20 per share. X's E&P is $500; X used the accrual method of accounting. What are the results to the parties from the alternative transactions (i.e., the amount and character of shareholder income and loss and the E&P impact)?

ANSWER THE QUESTION BELOW

In one transaction, A sells 20 X shares to B for $400 and 10 shares back to X for $200.

Utilize these resources: Internal Revenue Code section 318 and Regulation section 1.318-1, 1.318-2, 1.318-3, and 1.318-4

Constructive Ownership of Stock IRC section 318