Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200.

Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stock's fair market value is $40 per share. Z's E&P is $1,000. C sells 20 shares to Z for $800.

a. The redemption will be given dividend treatment

b. The redemption will be given sale or exchange treatment under 302(b)(2), substantially disproportionate disposition.

c. It is impossible to tell whether the transaction will be given sale or dividend treatment.

d. The redemption will most likely be treated as a sale under 302(b)(1), not essentially equivalent to a dividend, since the voting percentage has dropped to 50% in a two-person corporation and this is usually sufficient to meet the test

e. None of the above

Which answer is the correct?

Step by Step Solution

3.42 Rating (158 Votes )

There are 3 Steps involved in it

Step: 1

Answer option The redemption will most likely be treated as a sale under 302b1 not essentially equiv... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamental financial accounting concepts

Authors: Thomas P. Edmonds, Frances M. Mcnair, Philip R. Olds, Edward

8th edition

978-007802536, 9780077648831, 0078025362, 77648838, 978-0078025365

More Books

Students also viewed these Accounting questions