Brekkie Time! Inc. is a closely held US C Corporation that has been growing in popularity

since it opened in 2010.It is a restaurant chain that specializes in Australian-style breakfast

and lunch, with specialities such as meat pies and lamingtons (yum!).In 2020

their sales have been greatly reduced due to COVID-19.As a result they decide to sell

all their restaurants that don't have outdoor seating (which account for about 30%

of their business).They continue to operate the other restaurants where patrons can eat outside.

As a result of this business contraction, Brekkie Time! redeems issued stock at

$1,000 per share, as follows:

Owners # Owned Before Redemption # Redeemed # Owned After the Redemption

Bruce 40 10 30

Shane 40 10 30

Koala Corp (

a U.S. C-Corporation) 20 5 15

Total Issued

and Outstanding 100 25 75

Bruce is your client and his basis in the stock is $100 per share, which he acquired

when the corporation was formed in 2010.

Koala Corp. is also your client and its basis in the stock is also $100 per share, and

it acquired the stock when the corporation was formed in 2010.

Brekkie Time! Inc. has sufficient earnings and profits to cover any distributions that

are treated as non-liquidating distributions under IRC 301.

Questions:

a)

What are the tax consequences to Bruce as a result of this transaction?

b)

What are the tax consequences to Koala Corp as a result of this transaction?

ACC 794, Corporate Taxation Module 6 Exam Question 3 20 points Brekkie Time! Inc. is a closely held US C Corporation that has been growing in popularity since it opened in 2010. It is a restaurant chain that specializes in Australian-style breakfast and lunch, with specialties such as meat pies and lamingtons (yum!). In 2020 their sales have been greatly reduced due to COVID-19. As a result they decide to sell all their restaurants that don't have outdoor seating (which account for about 30% of their business). They continue to operate the other restaurants where patrons can eat outside. As a result of this business contraction, Brekkie Time! redeems issued stock at $1,000 per share, as follows: Stock Owned Stock Owned Before Shares After the Owners (Individuals) the Redemption Redeemed Redemption Bruce 40 10 30 Shane 40 10 30 Koala Corp (a U.S. C-Corporation) 20 5 15 Total Issued and Outstanding 100 25 75 Bruce is your client and his basis in the stock is $100 per share, which he acquired when the corporation was formed in 2010. Koala Corp. is also your client and its basis in the stock is also $100 per share, and it acquired the stock when the corporation was formed in 2010. Brekkie Time! Inc. has sufficient earnings and profits to cover any distributions that are treated as non-liquidating distributions under IRC 5301