Little Corporation has accumulated E&P of $2,000,000. The corporation has 2,000 shares of common stock outstanding and owned by unrelated parties as follows: Gabrielle, 1,000 shares and Tad, 1,000 shares. Gabrielle and Tod each paid $200 per share for Little Corporation stock 15 years ago. At the end of the year, Little Corporation distributes securities (fair market value $300,000 and adjusted basis of $180,000) to Gabrielle in redemption of 400 shares of her stock.

1. Will Gabrielles redemption of stock receive sale and exchange treatment or will it be treated as a distribution of property? Your answer should include numerical calculations.

2. How much tax will Gabrielle owe as a result of the redemption? Assume Gabrielle is in the 37% tax bracket.

3. What impact does this redemption have on the tax liability of Little Corporation (if any)? Assume that Little Corporation has not had any capital transactions (e.g. gains or losses) in the past six years.

4. Would your answer for Gabrielle be different if Gabrielle and Tad were husband and wife? Explain how this relationship would (or would not) affect the tax treatment of the redemption.