Firelli Corp. has outstanding 400 shares of common stock of which A,B,C, and D each own 100 shares. No stock is considered constructively owned by A, B, C, or D under Code Section 318. In one transaction, Firelli Corporation redeems 55 shares from A, 25 shares from B, and 20 shares from C. The earnings and profits of Firelli corp. was $100,000 on the edate of the redemption. The redemption price was $100 per share. The shareholders purhcased their stock more than one year ago for $80 per share.

1. What is the tax effect to A of the redemption?

a. 1100 dividend b. 1100 long term capial gain c. 5500 dividend d. 5500 long term capital gain

2 What is the tax effect to B of the redemption?

a. No effect. b. 2500 dividend c. 500 long term capital gain d. 500 long term capital gain and 2000 dividend

3 What is the tax effect to C of the redemption? Hint (Dividends? longterm capital gain? no effect?)

a. No effect. b. 400 dividend. c. 2000 dividend. d. 1600 long term capital gain and 400 divdiend