1. Julio Gonzales is in the 32% tax bracket. He acquired 3,500 shares of stock in Gray Corporation seven years ago at a cost of $60 per share. In the current year, Julio received a payment of $157,500 from Gray Corporation in exchange for 1,750 of his shares in Gray. Gray has E & P of $6,000,000. What income tax liability would Julio incur on the $157,500 payment in each of the following situations? Assume that Julio has no capital losses and taxpayers in the 32% tax bracket are subject to the long-term capital gains and qualified dividends tax rate of 15%.

   a. The stock redemption qualifies for sale or exchange treatment. Julio has a capital gain

   • dividend income
   • a capital gain
   • ordinary income
   of $. Julio's tax liability would be $.

   Noncorporate shareholders generally prefer to have a stock redemption treated as a sale or exchange rather than as a dividend distribution.

   b. The stock redemption does not qualify for sale or exchange treatment. Julio has dividend income

   • dividend income
   • a capital gain
   • ordinary income
   of $. Julio's tax liability would be $.

   c. For part (b), prepare Julio's Schedule B (Form 1040) to reflect the tax reporting required of the transaction.

   SCHEDULE B (Form 1040) Department of the Treasury Internal Revenue Service (99)	Interest and Ordinary Dividends Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040.	OMB No. 1545-0074
   		2018 Attachment Sequence No. 08

   Name(s) shown on return		Julio Gonzales	Your social security number 123-45-6789
   Part I Interest (See instructions on back and the instructions for Form 1040, line 2b.) Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm's name as the payer and enter the total interest shown on that form.	1	List name of payer. If any interest is from a seller-financed mortgage and the buyer used the property as a personal residence, see instructions on back and list this interest first. Also, show that buyer's social security number and address		Amount
   			1
   	2	Add the amounts on line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
   	3	Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
   	4	Subtract line 3 from line 2. Enter the result here and on Form 1040, line 2b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
   	Note: If line 4 is over $1,500, you must complete Part III.			Amount
   Part II Ordinary Dividends (See instructions on back and the instructions for Form 1040, line 3b.) Note: If you received a Form 1099-DIV or substitute statement from a brokerage firm, list the firm's name as the payer and enter the ordinary dividends shown on that form.	5	List name of payer Gray Corporation
   			5
   	6	Add the amounts on line 5. Enter the total here and on Form 1040, line 3b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
   	Note: If line 6 is over $1,500, you must complete Part III.

   	You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust.		Yes	No
   Part III Foreign Accounts and Trusts (See instructions on back.)	7a	At any time during 2018, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
   				X
   		If "Yes," are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements . . . . . . . . . . . . . . . . . .
   	b	If you are required to file FinCEN Form 114, enter the name of the foreign country where the financial account is located _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
   	8	During 2018, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If "Yes," you may have to file Form 3520. See instructions on back . . . . . . . . . . . .
   				X

   For Paperwork Reduction Act Notice, see your tax return instructions.

   Cat. No. 17146N

   Schedule B (Form 1040) 2018