James Curtis refuses to commit to the terms of the redemption until he fully understands and can accept the federal income tax consequences to him. Therefore, the Curtis family has retained you to determine the tax consequences to both James Curtis and Bakery of the proposed redemption. The continuing shareholders particularly want to know the amount of Bakery's accumulated earnings and profits immediately before and after the redemption.

Be as specific as possible in responding to the parties questions, and provide suggestions and/or alemalives that might result in more favorable tax consequences to those involved, including Bakery itself.